PSD2 and the Transformation of the Business Model of Payment Services Providers

The provision of payment services is one of the most important activities performed by the financial sector. Traditionally, most of these services have been offered by banks, although in the last decades non-bank financial institutions have gained a prominent role in some specific segments, for example in the credit card business. In the past, despite being a relevant source of revenues for banks and other financial intermediaries, payment services provision has ranked relatively low in the interests of policy makers and academics alike, with most of the attention focused on the soundness of the system rather than on its efficiency. In recent years, this landscape has changed dramatically. New players have entered the market, in some cases increasing the degree of competition to the benefit of customers, in other cases exploiting network economies of scale and their better and exclusive know-how to gain significant market power. The purpose of this chapter is to discuss how some of the innovations introduced by the PSD2 might impact the business model of payment service providers in the coming years, what the effect on the equilibrium in the industry will be, what new risks may emerge, and what actions should be taken to counter possibly undesired outcomes. The analysis in this chapter will focus mainly on the potential impact of the introduction of three new types of intermediaries, known as Third Party Providers (TPPs): Payment Initiation Service Providers (PISP), Account Information Service Providers (AISP) and Card-Based Payment Instrument Issuers (CBPII).