Tech firms eye bank business under new payments rules

Consumers and retailers will have more choice when it comes to making payments for products and services under new rules coming into force this weekend in Europe. The shift could threaten the activities of mainstream banks.

The Payments Services Directive 2 (PSD2) is aimed at giving non-banking firms a chance to compete with traditional banks in the payments business and giving customers more choice over financial products and services.

It will force banks in the European Union to open up their customer data to third-party firms if directed to do so by clients, and open the door to "fintech" online applications such as Money Dashboard and Moneybox as well as established retail giants such as Amazon, Apple and Facebook.

Current Central Bank-authorised payment services companies, including Fexco Corporate Payments and EU Money Transfer, and e-money institutions such as Facebook Payments International in Dublin, have six months to apply for authorisation under the new regime to benefit from the rule changes. A spokesman for the regulator declined to say how many such applications it has received.

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PwC said interviews it carried out recently with 36 senior bankers in Europe, including Ireland, indicated 70 per cent of executives expected PSD2 to "affect all of their bank operations" as their monopoly over customer account information and payment services effectively ceases on January 13th.

“The new regulation will completely overhaul banking as we know it,” said Sinéad Ovenden, a partner in PwC Ireland’s financial services division. She said banks needed to come up with proper responses to avoid being sidelined by “more customer-oriented third-party offerings”.

“They will need to analyse the emerging payments landscape and identify new revenue opportunities for services, something most have yet to do,” she said.

However, Karina McTeague, director of retail banking supervision at the UK Financial Conduct Authority, was quoted by Reuters this week as saying the new development in the market was “likely to be a slow burn”.

“We, like everybody in this industry, don’t know exactly which direction it will go,” Ms McTeague said.

Customers will also be able to authorise firms to access their accounts to help them manage their finances, for example by guiding them to the cheapest points of credit and consolidating data from accounts with more than one bank, which banks have resisted up until now. – Additional reporting: Reuters