The European Banking Authority (EBA) has published the findings of a consultation held with the supervisory authorities, industry stakeholders and the EBA Fintech Knowledge Hub, to assess the impact of Fintech on business payment institutions (PIs), and electronic money institutions (EMIs). The scope of the EBA’s report is to document the ongoing changes in the industry and educate regulating institutions, supervisors, and the stakeholders. As detailed in the report, the payment industry transformation is being dramatically accelerated by the following factors:
- The increased digitization of customers who, being connected 24/7, expect a faster, cheaper, more accessible, and safer way to conduct their online transactions. As a result, PIs and EMIs are progressively shifting their strategy towards a more customer-centric approach;
- Regulatory changes, such as the introduction of the Payment Services Directive (PSD2), which are creating an increasingly competitive environment, with new FinTech firms and authorized institutions entering the market on a daily basis;
- The introduction of new technologies and the need for PIs and EMIs to leverage their effectiveness prior to possible deployment. These include the use of big data analytics, artificial intelligence, DLTs, blockchain and cloud services.
As a result of the increased competition, many PIs and EMIs are now expanding their portfolio of services by obtaining EU passporting rights to operate cross-border, requesting credit institutions or third-party licenses, and providing the new account information services and payment initiation services introduced by the PSD2. It has to be noted, however, that most PIs and EMIs are still relying on external Fintech firms in order to digitize their services and products, a sign that the development of internal capabilities is still a long way to come.
BigTech firms are also increasingly involved in the European payment market, with the risk of traditional institutions being left behind, which would, in turn, create a customer shift.
The challenges ahead
According to the EBA report, five main obstacles are hindering the transformation process for PIs and EMIs:
- Low operational resilience and the necessity to create safe and reliable ICT infrastructures;
- Crystallized business models which fail to meet customer expectations;
- Compliance with new and existing regulations;
- The need to educate customers in the adoption of new technologies;
- The necessity to attract and retain human resources in possession of relevant digital skills and qualifications.