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Why 2017 will be the year of turning points

Why 2017 will be the year of turning points

Paul Jennekens

Manager Marketing

21 December 2016

Why 2017 will be the year of turning points  


Major developments, promising new technologies and sometimes a lack of clarity; 2016 has been an exciting year for the financial world. PSD2, instant payments, mobile payments and blockchain were the talk of finance town. But which of these technologies and developments will have the biggest impact in 2017?

This is what several influencers have to say about it.

Ledger technologies

According to Javier Santamaría, Chair of the European Payments Council (EPC), 2016 was the year of distributed ledger technology. “The attention drawn to it was the driver of the progress made in terms of reduction of reluctance, acceptance of its implications and overall understanding of its potential. Significant payments applications of this technology have not yet materialized in the market but they are much closer than expected months ago and are deemed feasible and fit for many purposes and use cases in several niches. The discovery we made in 2016 was that blockchain is neither the fearful disruption that would sweep away the known world of payments nor a technocratic, useless solution in search of a problem.”

New schemes
Person-to-person payments definitely gained momentum during the course of the year. This exciting technology is not completely new; PayPal was (one of) the first third parties that made person-to-person payments possible. In 2016 we saw several new parties that took over the role of the traditional bank. Customers now use an online interface or an app to transfer money, without direct involvement of banks. And it does not just stop there.

The European Payments Council will launch the SEPA Instant Credit Transfer (SCT Inst) scheme in November. This will make it possible to transfer up to 15,000 euros within ten seconds, 24/7 and on every day of the year, across borders between accounts in all the SEPA countries. Javier Santamaría, chairman of the EPC: “It contributes to the general trend towards faster, more streamlined, harmonized and digital-oriented payments. People expect speed everywhere, including for their payments. The SCT Inst scheme is a great opportunity for PSPs to prove their can propose user-friendly, innovative, and cost-efficient solutions to their customers.”
One of the buzzwords of 2016 was ‘fintech’: financial technology companies are ready to jump into banking and that means that the traditional bank will lose at least a piece of the pie. What should they do to secure their future? Collaboration with fintechs could be the answer, experts say. Chris Skinner, chairman of the Financial Services Club, doesn’t think that is going to work. “Why would a fintech company want to be acquired by a bank when the fintech company could become bigger than the bank? I think that is complacent thinking by the banks.”

But what is the alternative? “Banks should become memory stores, where they hold our digital assets at the value store. Right now we trust companies like Google and Facebook for our photos and storage. But should we trust them? There is a big opportunity for banks there.”

The overarching theme of 2016 was the Payment Service Directive 2 (PSD2), which will be effective at the beginning of 2018. This doesn’t mean that the financial world can lean back and see what happens. Next year will be the year of preparations. “There is a great degree of uncertainty on the regulatory front given that the European Banking Authority (EBA) has not yet published its final Regulatory Technical Standards (RTS) on strong customer authentication and common and secure communication under PSD2”, said Javier Santamaría, Chair of the EPC. “Even though a number of market initiatives have recently been launched it would seem that stakeholders have by and large been waiting for the outcome of this regulatory process – expected in the course of the first half of 2017 – before proceeding further.”

The guideline gives new players on the markets, the aforementioned fintech companies, access to bank accounts. That is only when customers give their approval, but it is something for traditional banks to keep an eye on. Fintechs can use this account information to develop new products.

There is some heavy competition ahead for the traditional parties. But there are challenges for the competitors as well. They must earn the trust of the customer and need to secure their services, which must be compliant with the ECB requirements. And there is the potential issue with fragmentation when it is coming to online payments. Paul Alfing, chairman of the e-Payments committee of Ecommerce Europe, states that PSD2 is not necessarily the solution to a better interoperability in the European banking world.

Banks will update their legacy systems because of the new guideline, which should ensure the harmonization and standardization of payments. “All these European systems need an umbrella, something that connects them. That interlayer needs to be standardized so every bank and every system can plug into it. I like to compare it with a travel plug, which you use to get electricity from every socket in the world. In this situation, I think an API could work as ‘travel plug’.”

Turning point
While we can’t look into the future, we can say that 2017 will be an important year for the financial world – a year of turning points. In the near future, we can pay wherever and whenever we want with different partners and devices. Traditional banks have to come up with new ways to secure their future and new parties will present us technologies that will make our lives easier.