PSD2 XS2A: Strategic alternatives for banks

27 Mar PSD2 XS2A: Strategic alternatives for banks

PSD2 XS2A is reforming the existing payments business and will shape the future of banking. PSD2 XS2A is not ‘just another regulation’ requiring only an operational and compliance approach. But it can be considered as an accelerator for technology driven disruption of incumbent banks by flexible and innovative service providers that target not only the payments value chain, but every ‘piece’ of the universal banking model.

Innovative third party providers (TPP) and other players such as acquirers, processors, PSPs and innovative banks are looking to take advantage of this opportunity. These players threaten to capture revenues which are long taken for granted by traditional, incumbent financial institutions.

A bank should know what exactly it wants to be to its customers. Based on the statement following strategic choices are there:

1. What should be there position in payments value chain?
2. What should the breadth of my transactions services portfolio be?

The above choices result in following four alternatives:

1. Comply: This requires bank to focus on PSD2 compliance and enables TPP to execute payment initiation and account information services.
2. Expand: In addition to PSD2 compliance, banks also focus on developing and exposing services (through APIs) that go beyond basic payment and account information services.
3. Compete: In addition to comply option, banks also add an offensive strategy by offering (basic) payment initiation and account information services and becoming TPP themselves.
4. Transform: This is the combination of all 3 options. Banks become complete digital players, competing and collaborating for customer relevance and ownership.

Figure 1: Strategic Alternatives for Banks resulting from PSD2 XS2A

To summarise, PSD2 XS2A is reforming the existing payments business and truly understanding the implications of such change is difficult. Banking leaders should focus on adequate and timely decision-making regarding the bank’s future strategic value chain position and product portfolio.

Source: The Paypers - Vincent Jansen & Mounaim Cortet, Innopay