The way people bank and make payments is changing faster than any other financial services area. New technology and changing customer expectations are shattering the status quo and ushering in a growing number of new players that are challenging the traditional role of banks. This is also supported by regulatory developments such as Europe’s Second Payment Services Directive (PSD2), which introduces the concept of Open Banking within its regulatory framework.
To gauge the directive’s impact and measure the levels of preparedness in Malta’s financial world, Seed Consultancy undertook and published a research report on the adoption of the PSD2 and open banking in local institutions. The report, entitled ‘(r)Evolution’ followed its first research report ‘Agile’, which looked at Malta’s long-run national vision. From its research with local players a number of main conclusions may be drawn on the local state of play.
The liberalisation of consumer data through regulatory efforts such as the PSD2, which introduced the Open Banking concept in Europe, has the potential to revolutionise not only the payment services sector but any other area that is able to successfully leverage the availability of such data to either enhance its existing service offering or otherwise create new products and services based on same.
Notwithstanding the fact that they have fully recognised the long-term potential and short-term benefits these solutions can present, local players such as banks, financial institutions and fintechs had initially taken a cautious approach to venturing into this new field. Nevertheless, the study shows that these initial teething problems are gradually being overcome, with interest in Open Banking Solutions slowly but surely ramping up.
Local consumers and merchants remain largely unaware of the Open Banking concept and the added value it can bring to the table both with respect to occasional transactions as well as in everyday usage. A nationwide education effort spurred by both the private and the public sector will therefore be key if Malta is to replicate the success seen in other jurisdictions in this field.
Ultimately, the PSD2 and the advent of Open Banking will go down as a first important step towards greater consumer empowerment with respect to the utilisation of consumer data. For this to happen, and for the Open Finance concept to fully permeate on a cross-sectorial basis, the remit of the PSD2 and the data that can be made available to third parties must be sufficiently widened in both scope and purpose.
The discussion on the PSD2 needs to be elevated to a strategic, C-suite and board level so executives can determine how they want to respond, what opportunities Open Banking creates and what risks are created through inaction. PSD2 cannot merely be seen as a compliance exercise but one that is able to disrupt business models, gain efficiencies and enter new markets based on data and personalisation. Financial institutions need to focus on creating partnerships with fintechs to make the most of the opportunity. Speed to market is of the essence.
The local market is ripe for innovation and the challenges that many companies are facing can be addressed through such developments. Seed Consultancy are suggesting that the government develops a national payments strategy and supporting architecture to ensure that Malta can be an innovative hub and ecosystem that is further enabled by the presence of other strong sectors such as insurance, remote gaming and technology. This should provide a cluster in payment services excellence which will be supported by the required infrastructure and regulatory sandboxes.
Payment services have been in evolution since the introduction of cards in the 1950s. As technology and regulatory innovations continue to pick up momentum, it is believed that we are on the brink of a revolution in payment services, disrupting banks and other sectors.
The evolution in payment services continues; however, a revolution is looming.
JP Fabri and Nicky Gouder are founding partners of Seed Consultancy.