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PSD2: Banks Should Compete, Not Just Comply

May 10, 2016

“It feels like being on a tech board … one that is under siege by a thousand piranhas that are chipping away at various business lines and profit centers.”

That’s how a board member of a U.S. super-regional bank responded when she was asked at the 2015 MIT CIO Symposium what her role felt like today.

Fast forward a year and cross the pond, and I’m not sure that the responses we’d get to the same question today from European financial services board members would be fit to print in a family publication.

PSD2, APIs, and new competition

On top of the threat posed by hundreds of fintech companies attracting billions of dollars in venture capital aimed at cannibalizing incumbents, the European Commission has issued a wide-ranging directive on payment services: the “Revised Directive on Payment Services,” or “PSD2.” The directive requires institutions to provide access to account information to third parties through APIs.

The Economist describes the implications as a potential “field day” for account-data aggregators aiming to suck account information from multiple banks into an app, warning that “Banks could become mere ‘dumb pipes’ unless they lever their brands, client bases, and compliance skills to become aggregators of choice.”

Moreover, it mandates open access for new types of “payment providers” such as money remitters, retailers, and phone companies who want to get into the payment services game.

It would be perfectly rational to feel that regulators have forcibly cut the locks that protected banks’ “crown jewels”—and then chucked them into the piranha-filled pond.

But it’s not the shrewd reaction.

Opportunity knocks

Apigee’s upcoming Open Banking Summit, on May 19 in London, is a golden opportunity to learn how to make the most of what should be a galvanizing force to accelerate the digital journey your institution ought to undertake—not for the sake of compliance, but for the sake of growth.

Digital is driving a platform revolution, as exemplified by companies like Uber and PayPal and Airbnb. But the power of platforms (the how, why, and what of which are explained by some very smart folks in this new book) isn’t just for these digital natives.

Take financial services icon Visa, which offers “the power of the Visa Network, delivered as an API.” Or telcos, which are using APIs to move from “pipe to platform” and develop new services (including, in some cases, banking services).

For institutions that get their API infrastructure and growth strategy in order, every fintech start-up is a potential asset to their ecosystem that can complement—rather than cannibalize—their core

To be sure, PSD2 might change the timing and preclude some options for financial institutions once they embrace the use of APIs to go from “pipe to platform” as a growth strategy. And, as one of the most highly regulated industries on the planet, it’s hard to greet the prospect of more rules with open arms.

But if an institution has been hesitating to “get in it to win it” and build a digital platform, PSD2 offers a powerful opportunity to turn a mandate to do a few things differently into an accelerator. Financial institutions have the chance to go all in and excel at creating the new experiences now possible in the new digital market context, and do them superbly.

As Winston Churchill advised, “never waste a good crisis.”

(And, for the record, I've eaten freshly caught piranha—it's quite tasty).

Is PSD2 a field day for aggregators or an opportunity for banks to become the center of gravity? Join the conversation on this topic on the Apigee Community.

Register now using the code BlogVIP for a complimentary pass to the May 19 Open Banking Summit. Seating is limited, so don't delay!

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