As bankers and regulators reflect upon the 10 years since the global financial meltdown, we are witnessing what could potentially translate into a fundamental shift in the regulation of banking and payment services. In the initial aftermath of the crisis, the primary focus was on reforming the regulatory landscape to bolster financial stability, strengthen balance sheets, boost market integrity and ensure effective resolutive mechanisms, framed against a backdrop of heightened accountability and de-risking. Ten years on, competition and innovation have emerged as critical components in designing a robust banking system.

Echoing this sentiment, the European Commission has sought to leverage the competitive advantages that may be achieved through collaboration between traditional banks and niche technology-driven and consumer-centric market players, the ‘fintechs’. One of the Commission’s principal initiatives is the Second Payment Services Directive (‘PSD2’), which replaces its 2009 predecessor introduced at the height of the crisis. Capturing new market players, namely Account Information Service Providers (‘AISPs’) and Payment Initiation Service Providers (‘PISPs’), the PSD2 creates a framework for interaction between banks, market players and consumers, enabling the consensual-based sharing of consumer data.

The PSD2 seeks to create the right regulatory environment for the growing ‘plug-and-play’ market to flourish. In fact, this ought to be seen in light of the wider ‘Open Banking’ initiative. Expanding on the regulatory objectives of the PSD2, the Open Banking initiative aims to widen consumer choice through an opt-in banking model embedded in industry technical standards focused on, among others, cyber-security, customer experience and the empowerment of new market players to provide innovative solutions across a diverse range of banking products and services, in a seamless, cost-effective and secure manner.

At this juncture, it will be interesting to see whether banks will show an aptitude to re-align their business model with the technological and market realities heralded by these developments, and whether customers will willingly abandon traditional methods in favour of the fintechs’ propositions.

This piece forms part of Camilleri Preziosi’s ‘Beyond Blockchain’ weekly series, in which members of the firm’s blockchain and fintech teams map out how the landscape has evolved since the ‘Unravelling Blockchain’ series published earlier this year. For further information, contact us on blockchain@camilleripreziosi.com.