2019 was quite the year for payments. PSD2 officially came into effect and while there were some problems at the outset, as shown by the deadline extension to apply strong customer authentication, the future seems to looks bright on the whole. We saw further implementation of Instant Payments last year, and 5 Dutch banks have agreed to work together to combat money laundering, indicating there’s been interesting developments on the compliance front. Let's turn to the near future and see what we can expect in 2020.
The Dutch Payments Association calls Instant Payments “the new normal,”1 and rightfully so. Over 95%2 of payment accounts in the Netherlands are now reachable for Instant payments. While banks in other countries charge extra for an instant payment3, Dutch banks don’t charge any additional fee -something that we can be very proud of. More banks, especially small and medium banks, will start to implement their own instant payment capabilities in 2020. I also expect many more banks to explore if/how they can outsource these capabilities this year. This brings us to another trend.
With Instant Payments launched across Europe (and globally), innovations at SWIFT (with gpi and the imminent move towards ISO20020) and the launch of PSD2/Open Banking, the pressure on core banking capabilities will only increase in 2020. EBA will launch its Request to Pay rulebook. ECB will continue to position TIPS and will likely make good progress with its consolidation of TARGET2 and T2S.
As a result, banks need to consider their path forward. Accenture states that “traditional payments players cannot survive without a complete overhaul of existing systems”4 and Capgemini concludes that “instant payments and open banking reinforce each other and drive the need for back-office rationalization.5” I believe payment outsourcing will be increasingly considered when tackling these challenges in 2020. Tier 1 banks and smaller banks alike will become more interested in the benefits of outsourcing.
It’s no secret that the last few years haven’t been great for Anti-Financial crime efforts. More and more banks are getting hefty fines, so surely something needs to change. As Wiebe Draijer, Chairman at Rabobank stated, “the current method is not effective.6” Financial institutions keep investing in more people, but there will most likely be a shift towards better technology to detect financial crime more effectively.
As I mentioned earlier, 5 Dutch banks recently announced that they will start working together to fight money laundering.7 I expect more banks will follow suit, either by starting such associations or joining existing ones. This will not be limited to banks. We expect to see similar working groups forming in other sectors. For instance, among payment service providers that also need to comply with AML rules. Dutch minister of Finance Wopke Hoekstra proposed changes to the law to make this possible.8
New PSD2 license holders are still struggling to understand what is expected of them when it comes to fighting financial crime. With different (and new) business models entering the space, the risk-based approach leaves many variables open. Authorities need to provide clear guidelines and set the right expectations. In relation to this, big banks have publicly voiced that Fintech companies face a lighter form of oversight compared to the incumbents.9 We hope to get a clearer view of what is expected of the different parties in the financial industry this year, and most importantly, we hope to understand WHY.
PSD2 has come into effect, but its implementation is an entirely different story. Navigating the differences between different bank APIs can be a thorny affair. Luckily, parties like Visma Connect harmonize these APIS to ensure easy integration for less resources10. The bank APIs currently being produced in Europe are still generally poor in terms of quality (i.e. speed, availability, ...). Functionality is, in some cases, not yet what the Regulatory Technical Standards (RTS) describe or what the users want. We expect to see “premium” APIs emerge to offer functionality that is out of the scope of the RTS, but provide much requested possibilities, like retrieving information on saving accounts and mortgages. In 2020,APIs will be further implemented, the way they should be, and we expect to see the creation of an API ecosystem that builds on these PSD2 APIs.
The need to build end-user trust will increase in 2020.This is a big responsibility for the parties involved and a big factor forPSD2’s success. End-users will need to be educated properly, so they know what it means to give third parties access to their bank account. Furthermore, there will be a big task for central regulators to properly oversee the entrance of new parties in the financial industry, and ensure rules and regulations are followed.
In the UK, it took 9 to 15 months to get rolling with PSD2. Let's make it happen in mainland Europe as well!
The way we do banking and interact with our financial services provider is changing. The boundaries between banks and other service providers are disappearing. In Asia, e-commerce and financial services like payments have been seamlessly integrated for some time now. You hardly notice that your bank is involved at all.
A good example of this happening is at KBC bank in Belgium. Customers are able to purchase transport tickets and pay for a parking spot, besides doing their banking. They have even gone so far as to provide this service to non-customers11.
FinTechs and e-commerce companies are already developing services where there is minimal friction with the bank (although the SCA requirements might ruin this experience12). We will see more of this in 2020. Incumbents will need to get more involved, and expand their service offering to improve overall customer engagement to stay relevant.
With all of these developments, it looks like 2020 will be another exciting year for payments and banking as a whole. We have not even covered the impact that big tech will have on the sector13 and what new technologies will be used in banking14. I guess all of this and more is yet to come in 2020!