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European banks braced for 'slow burn' payments revolution

Reuters  |  LONDON 

By Jones

(Reuters) - New European rules on and due to go into effect on Saturday mark the start of a "slow burn" revolution that will prise open traditional retail and may force lenders to rethink their business models, regulators say.

The Payments Services Directive 2 (PSD2), which allows retailers and consumers to bypass banks by authorising payments directly from personal accounts, among other things, aims to cut costs and increase choice by widening the range of firms offering

The rules, which also reflect rapid advances in technology in like the use of smart phones, open the door to "fintech" like Money Dashboard, Plum and Moneybox, as well as established like Amazon, Apple, and

"The development of the market is likely to be a slow burn," said Karina McTeague, director of retail supervision at Britain's regulator, the (FCA). "We, like everyone in this industry, don't know exactly which direction it will go."

Industry experts said the directive would likely have enormous implications for traditional

Although firms with PSD2 licenses will not be authorised to take deposits or make loans, bypassing the banks means debit or credit cards will not be necessary for most of their customers'

Customers will also be able to authorise firms to access their accounts to help them manage their finances, for example by guiding them to the cheapest points of credit and consolidating data from accounts with more than one bank, which banks have resisted up until now.

"PSD2 is a revolutionary piece of that is likely to signal the end of the high in the medium-to-long term," said Michael McKee, head of at international firm

The FCA said it has received 40 for PSD2 services in Britain. As many as a dozen could be in place by Saturday, it said.

The directive puts the at the forefront of efforts to disrupt the central role of banks in how people pay for goods and services online and encourage competition by giving customers the right to share their account data.

Fintech startups in the have argued that a little-known provision in the Dodd-Frank Act gives them the right to source data from their customers' accounts, but say some banks have been slow to comply.


The "open banking" system may take a while to gain momentum with the public.

efforts to make it easier to switch have had limited success due to customer inertia, for example. Another difficulty is convincing customers that their is safe in the hands of outside firms.

"It will be a challenge for all existing banks and payments firms, given their responsibilities to protect information, to properly and promptly handle requests for access to customer data from new open portals," said Tim Dolan, a lawyer at

Steve Tigar, of Edinburgh-based personal financial management service Money Dashboard, said the new rules will help their business by establishing trust.

"Using a service like Money Dashboard will become commonplace as opposed to the sole domain of early adopters," he told

The has said direct and account services firms could become the future "face" of day-to-day banking, effectively turning traditional into vaults.

That represents a challenge for banks. A BoE stress test of top UK lenders last year said PSD2's feature of finding the cheapest credit could mean banks will lose revenue from charging for overdrafts, for example.

Income from processing payments and overdrafts currently contribute 800 million pounds and 2.6 billion pounds respectively to annual pre-tax profits of the major UK banks, the BoE said.

That's a relatively small amount compared to the 2016 pre-tax profit of 3.2 billion pounds at just one bank, But banks may also have to spend more on marketing to attract and retain customers in face of increased competition, the BoE says.

"I think the days of when you have a and it provides all the touch points to that organisation and provides you with all the product sets, and keeps you captive, are gone," said Anne Boden, of upstart Starling Bank. "PSD2 could change forever."

Reed Smith's Dolan said there is nothing to stop banks competing in the same space. has already said it will launch a new app to

"We are expecting a mixed market to develop here with both small firms challenging and larger players offering these services to their customers for the first time," said Christopher Woolard, the FCA's

The FCA this year is reviewing the business models of to see if they are sustainable, and will include the impact of PSD2 as an added consideration.

Britain's plan to leave the next March will not affect the implementation of PSD2 because all of the EU's financial rules will be incorporated into UK

(Additional reporting by in and Anna Irrera in New York; Editing by Sonya Hepinstall)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Wed, January 10 2018. 23:49 IST