PSD2: The digital transformation accelerator for banks

The revised Payment Services Directive (PSD2) is not ‘just another regulation’ requiring a mere operational and compliance approach, but an accelerator of the already on-going change in the fabric of the — digitisation prone — financial industry. The PSD2 provisions on ‘Access to account’ for Payment Initiation and Account Information Services (‘XS2A’) will accelerate this by forcing banks to open up consumer payment accounts for appropriately licensed, innovative (bank and non-bank fintech) service providers. A pivotal element to this concept of opening up payment accounts is the development of Application Programming Interfaces (APIs) by banks. Fintech players are seeking to capitalise on the emerging API landscape and to capture customer and developer mindshare as well as payment and non-payment (data rich service) revenues long taken for granted by incumbent financial institutions. The key challenge for leaders of incumbent financial institutions is to ensure PSD2 XS2A compliance, while at the same time retaining customer relevance and maximising addressable market and revenue potential across a rich transaction services portfolio. APIs could redefine the financial services distribution game of banks. Some financial institutions see PSD2 XS2A and APIs as an opportunity to work closer with emerging fintech companies. Others see it as a threat to their business. This has led to different strategic choices for banking leaders. The authors have identified four generic strategic options (ie, Comply, Compete, Expand, and Transform), fitting the wider spectrum of leader attitudes towards PSD2 XS2A and adoption of APIs as a business strategy. All options come with strategic, tactical, and operational considerations and will be elaborated upon in this paper. Making the ‘right’ strategic decision will require banking executives to (re-)consider their future ambition, desired position in the value chain, the accompanying transaction portfolio, and impact on the operating model.