Europe’s banks and payment providers have plenty on their plate to manage when it comes to upcoming change to regulations, quite aside from their own reinvention and digital transformation strategies.
What regulations are coming and why it matters
A survey by EY, results of which were unveiled at Money 2020, indicates a real and present tension between the raft of regulations achieving the desired outcome and the viability of organisations to benefit from them.
This is quite aside from the state of readiness, which is the thrust of the survey findings but certainly plays into the ability and incentive to get ready.
The real tension lies in that lack of certainty around implementation and understanding of the initiatives.
Because it is no coincidence – it is in fact, “by design” that there is a lack of definition, or ambiguity around implementation and expectation, according to EY in the accompanying insight piece it published alongside the survey.
“The EU wants markets to find their own solutions to some of the technical challenges, adding another level of complexity for banks trying to calibrate their response.”
Flux, limbo, uncertainty – this is the bedrock of change and it’s a living paradox.
Underpinning it is the even more opaque landscape taking root at the hands of those developing generative AI and how this could undo any anti-fraud preparations in advance of implementation.
The phrase building on sand comes to mind.
According to an EY survey of leaders and senior decision makers at 26 banks and payment service providers with “significant presence” in the EU, conducted in 2024, the following concerns around profitability were taken from freeform responses:
SCT Inst – enabling 24/7 instant transactions and verification of name and IBAN of payees:
- Increased operational costs due to continuous processing and alignment of fees between instant and batch payments.
- Mandated instant payments across channels may strain profitability by limiting differentiation and increasing fraud risk.
- Upfront technology investments for compliance, ongoing fraud monitoring and potential revenue reductions pose profitability challenges.
PSD3 – updates to the licensing and authorisation for Payment and Electronic Money Institutions:
- Uncertainty in assessment and limited expected impact alleviate concerns, but liability shift and interface upgrades pose profitability challenges.
- Potential increase in market participants and contracts with TPPs could affect financial stability and profitability.
- Initial investment in technology for compliance and potential competition from FinTech players are profitability concerns.
PSR – Payment Services Regulation enhances open banking by harmonising implementation across EU and bolstering consumer rights and protection:
- Potential fraud-related costs and liability in case of fraud are significant profitability concerns.
- Emerging Pay by Bank services pose medium risk but offer various possibilities.
- Compliance costs, technology maintenance, and potential competition from FinTech players are ongoing profitability worries.
FiDA – The Financial Data Access framework aims to share data between insurers, investors, etc. to extend open banking to open finance:
- Potential fraud-related costs and liability in case of fraud are significant profitability concerns.
- Emerging Pay by Bank services pose medium risk but offer various possibilities.
- Compliance costs, technology maintenance, and potential competition from FinTech players are ongoing profitability worries.
Digital euro – with the intention of accelerating the shift to digital through smaller, daily transactions, this is still in development:
- Concerns over substantial investments required and potential loss of deposit base due to uncertain distribution model and competition with existing methods.
- High impact on technological maintenance, sales costs and bank balance sheet, with unclear customer acceptance and need.
- Uncertainty regarding revenue impacts, especially on payments and balance sheet, alongside concerns about IT infrastructure and customer persuasion.
Payments Cards & Mobile Opinion:
Much like the CEOs at the helm of the financial organisations whose understanding of the incoming regulations, according to the decision-making respondents, is limited – or more limited than their own, regulators needn’t be expected to stipulate to practitioners how to execute – they are merely there to install boundaries and instil ethics.
Equally, the respondents are merely answering specific questions set within a specific context of a survey.
The point is, it is wide open for them and while uncertainty as an operational bedrock is absurd and dystopic in the business of banking, it is also a reality that affords them much freedom.
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