The revised Payment Services Directive (PSD2) : implications of PSD2 on Norwegian banks

Abstract

This thesis focuses on the revised Payment Services Directive (PSD2), a regulation aiming to make the European payments market more integrated and efficient, make payments easier and more secure and increase innovation and competition in the industry. The core challenge for banks is that PSD2 requires them to provide third parties access to their customer data through open APIs. Consequently, the directive has implications for banks that go further than regulatory compliance. Accordingly, the main objective of this thesis is to identify the implications of PSD2 on traditional banks’ competitive position in the Norwegian bank market and identify responses for how they can remain their competitive position. The thesis draws on market analysis, literature reviews and interviews. Through an extensive review of PSD2 and the Norwegian banking and payments market, we have concluded that traditional banks will be facing increased competition from third parties offering banking services. The main threat to the banks’ competitive position in light of this, is a potential loss of customer interaction and cross-selling opportunities. Further, we identified the value that lies in a customer’s financial data, and found how exploiting it can lead to a profitable business model for both banks and third parties. However, the success of third parties will rely on the consumer’s adoption rate. A customer’s decision in allowing third parties access to their data is two folded. On one hand, consumers demand the innovative and personalised services agile third parties are able to deliver. On the other hand, consumers emphasize secure solutions provided by trustworthy financial institutions, the prominent strength of banks. Banks can leverage the high trust Norwegian consumers place in financial institutions to strengthen their position in a new competitive landscape. Finally, we identified three approaches traditional banks can use for responding to increased competition: the compliance approach, the proactive approach and the Open Banking approach. Most Norwegian banks have dismissed the compliance approach by proactively engaging in initiatives through launching new products developed by themselves or in collaboration with technology companies. In a fast changing market characterised by increased competition and innovation, the two latter approaches will be more viable in order for banks to remain their competitive position.