The Impact of PSD2 in the European Fintech Market

The Impact of PSD2 in the European Fintech Market

On our Fintech Trends of 2019 report, we highlighted that one of the big trends would be change brought on by new regulations, namely the Payment Services Directive 2 (PSD2). It’s a European Union Directive with the aim to contribute to the creation of a single market of payment services in Europe.

The directive

The Payment Services Directive 2 (PSD2), enables bank customers, both consumers, and businesses, to use third-party providers to manage their finances, aiming to be safe for all entities involved, efficient in time and in costs and communications infrastructure, innovative by opening opportunities for new services and competitive, pushing for an ecosystem where several providers work on.

The new players

PSD2 creates the conditions for any client (private or business) to authorize their bank to give access to their account and payment information to any other providers properly authorized by national regulations – what is called Third Party Providers (TPP).

These third party providers can be Payment Initiation Service Providers (PISP), that provide payment alternatives to credit and debit cards, Account Information Service Providers (AISP), that aggregate information, online, information from multiple accounts and offer their customers an overview of their financial position, or Account Servicing Payment Service Providers (ASPSP), that make available and hold the payment accounts of consumers.

In a nutshell, the open banking API allows these third-party providers to access consumers’ financial information (with their permission) so they can provide them with new and innovative services.

A consumer-centric market

With the implementation of PSD2, banks will no longer be competing with just other banks, but every other financial services provider. Changing the payments value chain and which business models are profitable, will result in a more consumer-centric approach to the business.

As consumers expect an increased digitalization, banks will have a harder time differentiating themselves, so they will be partnering up with startups in fintech to provide new services and better experiences, fitting customers’ convenience and expectations.

The benefits

In the end, PSD2 is a directive working towards a more open and innovative fintech market that will achieve:

  • More security in electronic payments: Through the use of consumer authentication methods which comply with European standards and the accountability of payment service providers in the event of unauthorized payment transactions
  • Better protection against fraud and payment incidents for both consumers and merchants: By certifying all payment service providers who may have access to consumers’ bank details
  • The emergence of payment methods tailored to consumers and merchants: thanks to reduced costs in infrastructure and transactions.

The impact of it all is still to be seen – banks must comply with all the regulations of the directive by September 2019 – but bigger players are already taking notice of the impact the directive might have on the financial market: global fintech investment has doubled to €43 billion in 2018, according to

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Regtech: there’s a new disruptor in town

Regtech: there’s a new disruptor in town

First let’s start by explaining what is Regtech. A quick visit to Wikipedia will give you a kind of complex definition on Regulatory Technology it says it’s a new field within the financial services industry which uses information technology to enhance regulatory processes with the goal to tackle various regulatory problems, since it’s focused on regulatory monitoring, reporting and compliance benefiting the finance industry. This will make regulatory processes more transparent, consistent and standardized.

What this definition actually means is that regulatory technology helps banks meet regulatory requirements via technology and its exponential growth is mainly due to two reasons: the rapid development of FinTech, that has already proven its disruptive impact on financial services and the constant changes of financial regulation.

Regtech is here to produce efficient, cost-effective and innovative responses to regulatory demands. Until now financial institutions fought to keep up with new rules as well as understanding them, not to mention this was all done manually.

When Regtech first appeared in 2015 it was considered “a sub-set of Fintech”, now it has taken its own space and it’s rapidly separating itself from fintech. It is understandable why, banks don’t want to repeat the same mistakes from the past, the ones that took the financial system to collapse and some banks to bankruptcy, now, more than ever is important to manage risks, maintain the capital and create a more transparent financial sector.

According to International Banker “there are seven distinct areas within compliance and regulatory reporting that have the potential to be improved by regtech and those are: risk-data aggregation; modelling, scenario analysis and forecasting; real-time monitoring of payments transactions; identification of clients and legal persons; monitoring a financial institution’s internal culture and behaviour; trading in financial markets and identifying new regulations”.

All of the above are possible because of data analysis, machine learning and artificial intelligence. For example, Sybenetix, that was acquired by Nasdaq on September 2017, made behavioural analytics software to monitor individuals in financial institutions, looking out for things like unusual behaviour or suspicious activity that could be a sign of misconduct.

Some people believe regtech firms will start small but they’ll quickly grow and reach leading players in the market – Sybenetix is definitely a good example – this even before it reaches the masses, because when it does it’s a matter of months or a few years until it’s spread all over firm’s business strategies.

Regtech can be the next big thing, it matters and it’s extremely important and also won’t compromise Fintech place in the industry. Time will tell. But one thing is for sure is what we’re seeing right now is just the tip of the iceberg which means it’s a great business to invest in as well as a great business for a successful startup if you happen to have the skills.