Could PSD2 create a new market of banking ‘wholesalers’ and ‘retailers’?

PSD2 - EU Banking Regulation, open banking

The European Union’s PSD2 legislation, which helps to pave the way for a new era of open banking, is now a reality. The new regulations came into effect on January 13th 2018.

While it’s likely to be some time before the industry and consumers feel the full effects of these changes, now is the time for financial institutions (FIs) to prepare for what this could all mean for their business.

One potential consequence of PSD2 and open banking is a significant shift in how businesses engage with customers and deliver services. Is it possible that some banks could become ‘wholesalers’, looking after the core regulated banking functions, while others take on the role of ‘retailer’?

New distinctions

One of the primary goals of PSD2 and open banking is to facilitate increased competition in financial services, particularly within the payments market. The new regulations will make it possible for authorized third parties to access customer data in order to analyze account information or initiate payments.

This will contribute to the continuation and expansion of a trend that has already had a notable impact on the industry in recent years – the emergence of new providers that take a different approach to that of established FIs.

The distinction between ‘wholesalers’ and ‘retailers’ of banking services is one that could become particularly significant. Those taking on the role of retailer would operate on the frontline and build relationships with consumers, while outsourcing core regulated banking functions to wholesalers.

Accenture provided some evidence to back up this trend in a recent study on open banking. In a survey focusing specifically on the retail industry, nearly 90 per cent of companies said that, by 2019, they would have the capability to engage directly with banks (via APIs) to obtain customer data and initiate payments.

Jeremy Light, leader of Accenture’s payments practice in Europe, said open banking will give retailers the opportunity to boost their customer experience through more flexible payment initiation and faster refunds. He also highlighted the potential to accept payments directly from FIs without an intermediary, which could result in lower fees, fewer chargebacks and a reduced risk of fraud.

“Ultimately, retailers will have to determine whether they will get significant value by creating their own payment capability, such as a purchasing app combining payments and commerce, or if they are better off partnering with an intermediary that can create a universal capability connected to the banks to continue ensuring frictionless payments in this new environment,” added Mr Light.

A culture of collaboration

One seemingly inevitable consequence of the transition towards a more open banking environment is that there will be more collaboration between businesses.

This will be particularly true in cases where two or more partners can bring something different to the table and use their varying strengths to complement one another. A legacy bank that can combine its experience, brand recognition and established infrastructure with the tech-based agility and innovation of a fintech firm is a perfect example.

All businesses looking to evolve and deliver the highest possible standards of service to their customers in the open banking era must be open to collaboration.

Those that forge the most successful and productive partnerships – between wholesalers and retailers, for example – will be the best-placed to seize the opportunities arising in this new age for our industry.


Image: iStock/textureeyes

Written by Andy Brown

Andy Brown

Andy is marketing director for payments at NCR. He has nearly 30 years' experience in e-payment systems from the delivery and support of systems in the Far East and Europe, from both the product management and marketing perspectives. Based in the UK, Andy is responsible for marketing NCR payment solutions.

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