New European rules that will require banks to share customers' transaction data with competitors will be negative for lenders as it will raise costs and expose them to increased competition from peers and technology-driven newcomers that bypass existing payments systems, Moody's said.
The rating agency expects banks' strategic responses to PSD2 — the second European payment services directive — will split them into "ecosystem providers, active providers and passive providers." Ecosystem providers will offer customers products and services from third parties to embed themselves in customers' transactions; active providers will only opportunistically find new revenue streams; and passive providers will simply meet the requirements.
Given that banks generally benefit from strong consumer trust, the more they prepare for the rules before newcomers penetrate the market, the better they will be placed to defend their market position, Moody's analyst Aleksander Henskjold said.
Moody's does not anticipate PSD2 to trigger a large-scale displacement of banks, as most incumbent European lenders have strong retail franchises and are capable of defending them, although the agency noted that the rules will likely accelerate technology-driven change in the EU banking sector.
