Insight & Analysis

PSD2, waves or ripples?

Published: Oct 2018

European banks are pressing ahead with digitisation in the wake of the new payment services directive, but there are various ideas on what shape the bank of the future will take.

After the hoopla that preceded its launch back in January, is the revised Payment Services Directive – aka PSD2 – making waves in Europe’s retail banking market?

The impact of PSD2 was one of the issues covered at Diebold Nixdorf’s annual internal management seminar, held last week in Lisbon. The US multinational is the biggest provider of ATMs with a share of one third of the world market, and also provides software to both banking and retail clients, which gives it a ringside seat to how the tussle between banks and fintech disruptors is progressing.

The general conference theme chosen by the group this year was the need for agility in retail banking. Diebold’s chief executive Gerrard Schmid believes that PSD2 has encouraged European banks to become more agile and has also made them more “structurally sound” than their US peers.

  • Rising competition as new entrants are encouraged to join the market.
  • Shifts in banks’ cost base in providing various services.
  • Consumer evolution, with some ongoing shifts in customer behaviour more evident than others.
  • Unbundling, which in Europe is led by PSD2.

While each of these factors has persuaded banks to embark on digitisation programmes, Watson stressed that new technology isn’t enough and banks also need to change the way in which they provide service to customers. He summarised the goal as “Owning the customer journey by delivering a seamless experience across the entire commerce value chain”, with Amazon having set the benchmark for how this can be achieved.

A shrinking network

As banks reassess their role, they do so against a backdrop of a steady decline in the number of traditional bricks-and-mortar branches in many countries and in some a standardisation of services. Examples of the latter include Geldservice Netherlands (Cash Service Netherlands), established seven years ago by Rabobank, ABM Amro and ING to provide cash services to Dutch banks and Bankomat in Sweden, which is jointly owned by the country’s five biggest banks and has taken over the running of their ATM networks.

The ATM pooling delegated to Bankomat seems likely to be a trend that will extend to other countries in time. The steady decline in Sweden of cash as a payment method, accelerated by the introduction in 2012 of the banks-supported Swish mobile payments system, has seen the number of ATM withdrawals also reduce. When Bankomat took over a total of 3,800 machines it promptly removed 1,000 of them from the network, while many of those remaining have been relocated from bank branches to shopping malls.

The disappearance of banks from many high streets is also seeing the advent of mobile branches – tech equipped vans or trucks that regularly travel to towns where the traditional branch has closed and also serving areas where establishing a traditional branch is uneconomic.

Limited impact

As the Lisbon conference demonstrated, those traditional branches that do survive are shifting their focus away from transactions, with self-service being ramped up, and are concentrating more on customer relationship management. “German banks now charge customers for using a teller if it’s a transaction that could have been done via self-service,” says Matt Phillips, Diebold’s VP for banking sales in the UK and Ireland. “UK banks would like to do likewise, except no-one wants to be first to make the move.”

He believes that PSD2 has yet to make the impact on the market that many anticipated. “There was a lot of nervousness from the traditional banks that they could lose market share to the likes of Monzo and Atom Bank, but there’s not yet much evidence of them making significant gains.”

App-based Monzo in particular has won a following among younger consumers and kudos for its ethical policy. The newcomers “offer a seamless banking experience, but people still want an established name when, for example, they are taking out a mortgage and even when they have suffered a bereavement and want to be helped through the process,” suggests Phillips.

So despite the advent of open banking “the big banks still have a major advantage and also the most data, which enables them to offer customers something personalised. It’s a massive advantage.”

What form the bank of the future will take has still to be determined. Examples range from the coffee shop format pioneered by several Dutch banks to the tech-heavy branches now being rolled out across the Middle East by Emirates NBD, complete interactive tellers and the humanoid robot Pepper – already used by the hospitality industry – used to meet and greet customers.

A mantra that many of them share is “fail fast”, a phrase regularly heard at the conference. So we can expect to see a variety of innovative banking concepts trialled over the next few years, but only those that find favour with the public being pursued.

Schmid also believes one important topic is largely overlooked. “The debate revolves around the effect on the industry of regulation and technological change, but financial literacy is also a vital element. Many consumers still don’t know how best to take advantage of the banking system.”

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