Payments: how the West will be copying the East

Hello, Marco Polo

Payments industry practitioners in the European Union are understandably obsessed with the implications of the revised Payment Services Directive (PSD2). This was evident at the recent European Payments Summit, held in the Netherlands, where PSD2 dominated many of the discussions.

But the organisers didn’t allow the event to solely EU navel-gaze: speakers from the US, Asia Pacific, Russia and China also took to the stand to outline payments practices in their parts of the world.

But first, PSD2. Patrick Tans, a senior general manager at KBC Bank, described the European directive as the biggest change in banking for 700 years. He believes it will cause banks to lose the monopoly they have on customer experience and interaction for the first time since the 1400s.

PSD2 requires banks to open access to accounts to third parties and is part of a regulatory agenda that seeks to increase competition and openness in payments and banking. There’s an element of glass half empty/half full about this agenda. Tans said banks could win new customers under PSD2 by becoming third party payments services providers (PSPs) and offering overlay services that could help them gain a competitive advantage.

However, Philippe Lepoutre, deputy head of global transaction and payment services at Société Générale, disagreed, saying that PSD2 “imprisoned” banks because they “cannot say no to payments” if they want to remain credible with their customers. Financial institutions need to figure out what is key to them in payments and what they could consider as “accessories”. Lepoutre advised that banks cannot fight all the fights and should therefore focus on their areas of expertise and liaise with fintechs for services they consider peripheral.

Concern about the competitive threat from fintechs, which dominated conferences a few years ago, has given way to much more discussion about collaboration. Some believe that eventually the fintechs with worthwhile products and solutions will be acquired by banks. This might be delusional thinking on the part of banks, but the argument is that fintechs don’t have the reach, the ability to scale or the capital resources of banks.

The real value add in payments and banking will be in third party products, said David Kauer, head of product management, value added services at Switzerland’s PostFinance. “It’s not about banking; it’s about creating a more interesting customer experience and you don’t have to be a bank to do this.”

The pinnacle of the personal banking experience is China, where consumers are offered some very targeted and intelligent financial services. But it’s not the banks who have taken the lead here but companies such as Alibaba, which Pascale Brien, senior policy adviser, payments and digital at the European Banking Federation, described as “an elephant in the room”. Chinese companies, she said, could come to dominate the payments market in Europe much as US card processors dominated the payments card market…
This is an excerpt. The full article is available in the April 2017 edition of Banking Technology.