12 September 2019
‘Development of instant payments is supporting a progressive integration of European payment structures’
The impact of PSD2 and Open Banking is not yet as striking as Jean Clavel expected years ago. “Impact at scale is taking more time than we thought”, says the Managing Director & Partner of The Boston Consulting Group (BCG) about new developments driven by PSD2. The results may be slightly disappointing at this stage, but there are also plenty of positive notes that are made possible by Open Banking. In this blog, Clavel explains his vision on the future of banking and the arrival of PSD2 and instant payments.
According to Clavel, there are several reasons why the impact of PSD2 in the Open Banking era has not been very noticeable yet. Banks got off to a late start, he argues: “For a long time, banks largely aimed for compliancy. Over the past couple of years, they have switched to a business approach, but it takes time before this leads to new visible payment functionalities for customers.”
Clavel also says the lack of common standards and, for example, confusion surrounding SCA-requirements slowed things down at European level. “The Regulatory Technical Standards (RTS) were interpreted differently around Europe, many countries went their own way, resulting in a large set of APIs and gateways. A lack of common standards has not done the implementation of PSD2 any good.”
Clavel, in contact with several banking stakeholders through his work for BCG, also emphasizes the challenges banks are still facing with their legacy systems. The digital transformation banks are undergoing, from customer journeys down to infrastructures, is a long-term effort. The established companies still lack fintech flexibility to effectively deploy Open Banking use cases at scale.
Clavel: “Banks built transformation roadmaps early on, but it was difficult to stick to them. It takes years to change an infrastructure and, in the meantime, new technological developments are rapidly popping up. It really is a challenge to define clear guidelines while retaining a degree of flexibility that makes it possible to respond to new technological innovations and regulatory constraints.”
Clavel remains positive for the future and the impacts of PSD2 and Open Banking. The combination of regulation and increasing competition from fintechs and bigtechs have helped banks and PSPs accelerate their digital transformations. “Digitization remains high on the agenda in the payments world, with the aim to leverage data analytics and new distribution channels. Alternative business models are also targeted by key players, blurring the historical lines within the payment competitive ecosystem. PSD2 contributes to these changes.” Clavel notably refers to accelerated developments in instant payments. He sees that instant payments not only offer clear use cases for customers, but also serve as a catalyst for the development of interoperable networks. Clavel: “As far as the development of instant payments is concerned, I feel that it supports stronger cooperation between financial institutions.” He refers to, for example, the P27 initiative that creates a single pan-Nordic payment infrastructure for inhabitants of Denmark, Sweden, Norway and Finland. Or the initiative in the Netherlands with which seven Dutch banks have jointly set up an instant payment network.
Implementation of instant payments
Increased European collaboration is a key stake. “The most important thing is not just instant payment use cases themselves but the way in which some are building more integrated payment structures through instant payments, with attention for collaboration, coordination and interoperability. We need to encourage collaborations like this, both on a regional level and between countries, and create more common standards. That is a very positive development.”
Speaking of developments, The Boston Consulting Group annually publishes its Global Payments Report. Clavel already mentions a number of interesting developments from the upcoming report. “A key trend that we will continue monitoring closely in coming years is the progressive convergence of card and non-card payments. We’ve been talking about it for a while, but recent strategic moves, supported by strong mergers and acquisitions, are accelerating the trend.”
“We are also seeing an increase in the impacts of data and advanced analytics in the payment world”, Clavel continues his story. “In the past, most banks and PSPs were focused on leveraging advanced analytics for risk assessments, but clearly they are shifting with a stronger focus on customer experience and personalization. In this respect too, instant payments will play a positive role providing additional real-time data to fine-tune offers. Challenge now, as always, is to deploy it all at scale.”
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