PSD2: A wolf in sheep’s clothing for FinTechs?

Heightened concerns from the European FinTech community regarding this once heralded pro-FinTech regulation

The PSD2 remains a hotly debated topic, especially in regards to its pro-FinTech stance.

Nevertheless, the winds of fortune may not be blowing in the right direction. In recent months, European FinTechs have been joining forces to lobby the European Commission and the European Banking Authority (EBA) to make changes to a proposed technical standard that could, if unchanged, dampen the ability of FinTechs to effectively compete against the incumbent banks. The concern amongst many is that this technical standard will make PSD2 pro-bank rather than pro-FinTech.

At the heart of this debate is the proposed RTS which determines how FinTechs and the incumbent banks will communicate with each other on behalf of the consumers. Under the proposed RTS, technology such as Direct Access (A.K.A. screen scraping) – where data is automatically collected from a bank’s online consumer banking interface – will be prohibited. Instead, access to customer data will likely have to be through a bank-approved access point or API.

Regardless of one’s views on screen scraping, prohibiting the use of this technology could actually force FinTechs to become technological dependents as the banks will essentially become gatekeepers of the the FinTech sector.

The adverse impact on FinTechs’ business models could potentially stifle innovation, adversely impact the competiveness of FinTechs and also impact control over customer data – all of which goes against the spirit of PSD2 which aims to increase competition and innovation by opening up access to customer data to alternative non-bank providers.

From an incumbent’s perspective, RTS could be a way to control the competitive threat that FinTechs pose but such a view is arguably myopic and neglects to recognise that for many banks FinTechs are and will continue to be drivers of growth and engines of innovation. The term ‘Frenemies’ is widely used to discuss the views of banks towards FinTechs and what is becoming increasingly clear is that FinTechs are integral for many incumbents to keep up with ever changing demands and  expectations from their various stakeholders  – and the pace of change does not show any signs of slowing down.

We will definitely be watching developments in this area very closely.

To close, I wanted to pose a question that we all need to consider and maybe ask ourselves more regularly – “are we forgetting about what the customer wants?”

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If more complicated models will be required for individuals to share their data, customer experience is likely to be less seamless. This goes against a lot of the investment we have seen across Europe in regards to improving and streamlining customer journeys and experiences – this is something we will also be keeping an eye on and discussing in our sister Customer Experience blog.

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