Banks are unprepared for the Payment Service Directive
A survey done by Accenture and Finextra finds that the new Payment Service Directive (PSD), that will take effect in November, will cost each bank between 1 and 20 million – which is not very much in my view.
20 million euro for a big bank is small change. In a survey done by Capgemini from 2007 it estimated that the banking community had to invest 7 to 10 billion to become SEPA compliant.
But the most interesting thing about the latest study isn’t the costs but the banks attitude to the PSD. According to the study they are very complacent and relaxed about the introduction of PSD in November.
In the study it says that:
“Nearly two-thirds (63%) of respondents say they do not consider new entrants - such as new payments organisations, telcos and utilities - to be a significant threat to their business.”
In addition:
“Only 11% foresee serious competitive threats emerging from the directive.”
Further the survey finds that “… nearly half (48%) of respondents indicate that they have no immediate plans to launch new products under PSD.”
Maybe it is the slow adaption of SEPA that has lead to this lack of concern among the banks. Maybe the banks should take a look at what has happened for the securities exchanges since the introduction of MiFID two years ago.
MiFID is the Markets in Financial Instruments Directive which is a similar directive to the Payment Service Directive. The MiFID has harmonised the regulatory regime for investment services across Europe and opened the door for new entrants. These new exchanges have already gained about 25% market share for the most traded instruments – in less than 2 years.
The PSD has been introduced to increase competition for making payments in the EU and will take effect on November 1st.
It will force the banks to give better services, more transparent pricing and accept competition from non-banks.
This should lead to a sharper competition among the banks – especially in the corporate market which is much more price sensitive.
Never before have so many things been happening in the world of payments as at present:
• SWIFT is providing access to banks for corporates simplifying the bank interfaces
• At last XML has reached the world of payments with the new ISO 20022 format
• SEPA Direct Debits will start November 1st
• PSD will become law across Europe at the same time
This is the biggest collection of disruptions and changes that we have seen in the payments industry ever.
So for banks to believe that it will be business as usual is optimistic.
OK, things don’t change as fast in the payment industry as in securities trading. You cannot earn or lose million in a day on your bank interface, but we are never the less going through an interesting phase where we will see more changes to the industry than we have seen in the last 30 years.
And changes and disruptions aren’t normally good for the incumbent, so banks better get a strategy in place as to how to react to the new competitive threats, so they can use the new environment to their advantage instead of being a victim.
