The shock that doesn’t hurt (yet) : a case study of how the second payment service directive is changing the Norwegian banking industry

Abstract

This thesis investigates the competitive implications of the newly implemented Payment Service Directive II (PSD2) on the Norwegian banking industry. Specifically, it investigates how 1) the technological shock created by PSD2 affects competition in the Norwegian banking industry, and 2) how incumbents have responded to this shock. I use data from ten in-depth interviews with key actors in the banking industry, thorough document analysis, and quantitative text analysis of market reports. In my analysis, I find that new and innovative solutions in the markets for Payment Providers and Aggregator Banks represent strong substitutes for important parts of banks’ product portfolio, leading to increased value creation in the industry. Simultaneously, PSD2 is believed to increase transparency, reduce customer loyalty, and decrease negotiation power towards suppliers, leading to a reduction in value capture in the market for “Total Banks”. In the new positions arising as a result of PSD2, value creation is expected to further experience an increase as PSD2 is implemented and platform services are introduced to the market. However, in terms of value capturing in these new positions, I expect it to initially be low as firms compete intensively to win over customers, while it will be high in the longer term as “winner takes it all”-outcomes materialize and only a few players manage to dominate the market through data-driven platform services. My findings also show that the majority of traditional banks did not start to respond to the shock until 1.5 years after the announcement of the regulation. Factors such as uncertainty, the paradox of success, organisational structure, regulatory focus and fear of cannibalization may explain why measures were not taken until mid-2017.