Exploring the benefit of apps operating under PSD2 to consumers

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Horgan, Conor.
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University College Cork
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The financial services industry has undergone major disruption as the evolution of information technology has necessitated an unprecedented change to business models. Regardless of whether financial institutions and consumers have resisted or accepted this change, the second iteration of the European Union’s Payment Services Directive (PSD2) has mandated the industry to adapt. Much has changed since 2015 when the directive was first introduced with financial institutions and third-party providers (TPPs) developing security architecture and optimising the experience for customers. There is time for reflection as PSD2 took effect on December 31st, 2020. The debate over whether the regulation is overzealous or not has continued since its inception. The purpose of this thesis is to determine whom PSD2 has benefited and to what extent. It contains three core chapters, each tackling a separate research question as part of the overarching research objective, examining how PSD2 benefits its stakeholders. The thesis begins with a literature review of the core concepts of PSD2. It investigates each concept to determine whether it benefits the key stakeholders: financial institutions, third-party providers, and consumers. The concepts of PSD2 are found to be improvements in the following: competition, innovation, affordability, customer experience, transparency, and security. The results suggest that PSD2 primarily benefits consumers who have availed of cheaper prices, improved innovation, and improved customer experience. These are a by-product of increasing competition in the market. This increase in competition has resulted from PSD2 removing the barriers of entry for TPPs who have naturally benefited from an influx of consumers to their platform. The results of this study also show that financial institutions have not benefited from PSD2 as their oligopoly has dissolved. This study supports the argument that the oligopoly was unsustainable regardless of the effects of PSD2. However, a consolation to financial institutions is that PSD2 at least ensures the emergence of third-party providers is accompanied by security standards that protect financial institutions’ customer data from TPPs with insufficient security. As the study develops, it continues by examining, through a quantitative survey, whether consumers experience the benefits of PSD2 in their interactions with applications operating under the regulation. The direction to study the benefits of PSD2 to its stakeholders through the lens of the consumer impact was influenced by two significant findings from the literature review: • Out of all stakeholders PSD2 benefits consumers the most • Financial intuitions and TPPs are mainly impacted by the uncertainty in devising the most optimised PSD2 strategy to attract more customers. Therefore, a survey which weighs the most impactful PSD2 benefits to consumers is a valuable study in shaping the strategy of financial institutions and TPPS Consequentially, chapters three and four examine both the importance of PSD2 benefits to consumers and the efficacy of producing the benefits in PSD2 enabled services thus far. This presents to what extent TPPs and financial institutions have been exposed to the PSD2 benefits that are only realised when customers adopt their PSD2 enabled services. In the quantitative study, consumers graded each of PSD2’s benefits as “very present” and “important” in their experience using financial services. Security improvements are graded by surveyed consumers as the most important PSD2 benefit. On the other hand, increased competition, improved innovation and improved transparency are graded as the least, second-lest and third-least important PSD2 benefit respectively by consumers. The survey results are further analysed in the final component of this study to understand whether PSD2’s security improvements have a positive or negative effect on the regulation’s other benefits. The effects are found to be positive by this study which suggests that security should be prioritised by applications implementing a strategy for PSD2. Overall, this study identifies aspects of PSD2 which companies should focus on to gain a competitive advantage. Similarly, it also identifies aspects which the European Union Commission should recognise as a success and an avenue to deliver future regulatory improvements.
PSD2 , Open banking , Open data , Third party providers
Horgan, C. 2021. Exploring the benefit of apps operating under PSD2 to consumers. MSc Thesis, University College Cork.