12 July 2017
PSD2: bank as a platform will rise as a new model
The global payments industry continues to grow at a rate of 5% and within the next 5 years it could reach about €2,400 billion in value. This business can therefore represent an important revenue component for banks. Nonetheless, according to PwC’s analysis, the margin of commissions linked to the cash and payment services still has a limited weight on the total margin of the commissions (~ 10/15%) for the Italian banking sector.
So far, the protagonists of this business were operators who mediate large volumes being able to leverage economies of scale to offer payment services at an increasingly low marginal cost, enriching their range of services with complex products such as cash pooling. The market for payments between private individuals or small operators is rather fragmented and manned by operators who hold the customer’s payment account and lend traditional banking services.
Three new services
The introduction of PSD2 overcomes a consolidated paradigm in the European banking market by introducing three new services (payment initiation, funds checking and account information) based on the access to accounts that will enable new business models for Third Party Players like operators that intend to become payment institutions or digital currency institutions. In this context the PSD2, and the combined effects of other industry innovations (eg. SCTInst, E-identity) increase regulatory and competitive pressure on the payments market by encouraging new scenarios and creating opportunities to develop new business models.
According to a Deloitte analysis, by 2020 the world of banks is likely to lose up to 29.5% of the revenue from the payment services business compared to 2015 levels. The scenario introduced by PSD2 involves the entry of new players that will bring new competition to the banks that must react, expanding the offering of services and developing a different relationship with customers, in order to defend the current market share. What banks should fear is not the competition of a small fintech startup, that could become an interesting partner, but the arrival of the giants of non-banking sectors (like Facebook, Google, Amazon or Ikea), which can rely on a customer base with a highly innovative user experience that can be exploited as an element and factor of disruption.
Bank as a Platform
One of the great opportunities arising from the introduction of PSD2 for banks is called Bank as a platform and sees an expansion of business opportunities through development and the dissemination of application programming interfaces (APIs) accessible by the third party providers and the “opening” of their core banking systems. According to Deloitte, in fact, it is not enough to follow the new regulatory rules, banks will have to evolve and the right model is “Bank as a platform” one. The evolution towards this logic will enable banks to become a truly digital player and build an ecosystem even with third parties that are in the condition of developing solutions, for example in mobile, apps and in general in digital services. In this scenario banks can also develop basic services Account Information Service Providers or Payment Initiation Service Providers, or they can become themselves a Third Party Player.
In Italy the fintech market is definitely in turmoil, numerically still small, with few big names and investments still contained. According to the data of the Commercial Register, there are about 6,880 innovative startups of which about 150 are identifiable as belonging to the fintech sector. Today the banks must necessarily look with interest in this market because it is under the eyes of all that day after day these startups compete more and more with banks going to occupy different sectors: from credit, to payments, to loans.
A first step towards the PSD2 and the Bank as a platform model in Italy is represented by Platform, an API marketplace to access the payment gateway of Banca Sella Group dedicated to startups and Italian companies. Platform allows the execution of complex operations in a faster and more integrated way and was born with the goal of creating a community, which uses and contributes to develop not only APIs of the Banca Sella Group but everything that may be of interest to the fintech sector.