Shearman & Sterling LLP | FinReg | European Banking Authority Publishes Report on FinTech's Impact on Payment and Electronic Money Institutions' Business Models
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  • European Banking Authority Publishes Report on FinTech's Impact on Payment and Electronic Money Institutions' Business Models
    07/08/2019
    The European Banking Authority has published a report on the impact of financial technology on the business models of payment and electronic money institutions. The report aims to provide an overview of the current FinTech landscape and raise awareness of the main trends affecting business models. It follows major developments in the industry including the introduction of the revised Payment Services Directive (known as PSD2), the emergence of new market entrants offering innovative products and the growth of instant and mobile payment methods.
     
    The report describes the current landscape of the industry and the current approach to FinTech. It observes that the global payments business has grown significantly in recent years and digital networks and devices are having a transformative effect on the way consumers communicate, work and transact. Institutions typically develop products and services using FinTech internally, although some have chosen to partner with FinTech firms. Interaction with "BigTech" firms (i.e. companies like Google, Amazon, Facebook and Apple) varies. Some institutions have productive relationships with BigTech firms providing payment technologies, while others consider BigTech a direct competitor. Key FinTech applications utilized by such institutions include facial/video recognition for know-your-customer purposes, robotic process automation for repetitive manual tasks, machine learning for analysis and planning and the use of cloud electronic identification and signatures with mobile authentication.
     
    The report goes on to observe the impact of FinTech on payment and e-money institutions' business models. Major trends include:
     
    • Expansion by institutions into new businesses (for instance business-to-person firms expanding into the P2P market);
    • Investment in payments infrastructure and technological developments, with a projected increase in ICT spending;
    • A reliance on outsourcing for a variety of operational and back-office activities; and
    • An interest in engaging with the new account information and payment initiation services under PSD 2.
     
    Key challenges identified for the industry are:
     
    • The impact of active participation in payment and e-money services by BigTech firms;
    • The impact of Brexit on the ability of U.K. institutions to provide cross-border services following the loss of the EU passport;
    • The dependency of some institutions on banks and credit or debit card schemes for payment processing;
    • Operational resilience and cyber-security;
    • Compliance with the regulatory framework, in particular for smaller and medium-sized institutions; and
    • Educating customers on digitalization and financial services.

    The EBA will continue to monitor developments and perform additional work to enhance supervisory consistency where appropriate.
     
    View the EBA's Report.
     
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