target audience: TECH BUYER  Publication date: Apr 2023 - Document type: Tech Buyer Presentation - Doc  Document number: # EUR150556123

Learnings From PSD2: Has Europe's "Innovation by Regulation" Approach Achieved its Objectives?

By:  Tom Zink Loading


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This IDC Tech Buyer Presentation takes stock of the achievements and failures of the revised Payment Services Doctrine (PSD2) after five years in action and analyzes lessons for its potential successor. The presentation was held at Finovate Europe on March 15, 2023, in London, one of Europe's most important fintech events.

PSD2 has been one of the most overhyped, diversely interpreted, and far-reaching payments regulations in Europe, sometimes hailed as the origin of open banking. While it has achieved some of its objectives such as improve payments security, data democratization, and more competition and choice for consumers, it has failed to achieve others such as creating a level playing field and reducing the cost of cross-border payments.

While it has nudged the finance industry into the era of openness, a valid question is whether this has led to more innovation than an industry-led transformation approach like those in Asia/Pacific and North America. The regulation has triggered a lot of thinking about the future of banking in a connected ecosystem, but the narrow constraints and prescriptive nature of regulation tends to limit the scope of innovation as regulatory subjects are putting on blinds to optimize compliance and cost rather than looking at customers' needs. The result are a myriad of similar solutions (e.g., personal financial management tools, payment initiation services) and limited out-of-the-box thinking.

The consequence is that everyone is a little more open, but compared with how international players are rethinking existing offerings and business models, Europe is no longer a leader in open banking or embedded finance. But there is hope that moving forward; the focus will shift to customer-centric innovation and value generation, now that the foundation for an open ecosystem has been laid. The European Commission needs to carefully evaluate whether its "innovation by regulation" approach has yielded the desired results or whether a "customer-centric innovation" approach may result in better customer outcomes.


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