Innovations in Finance as Regulators Push Open Banking - Understanding innovative processes and market change in the Swedish banking market as of payment services directive 2

Abstract

Digital technologies are transforming each layer of every stack in society. Within the financial industry, authorities in the EU and in Sweden believe that the development of digital technologies is being held back. Competitive authorities urge for the industry to provide better products, increased customer choice and higher price competition. One regulation that aims toward enhancing innovation within banking in Europe is the directive payment services directive 2 (PSD2), introduced in 2018. PSD2 requires banks to enable external parties to use their account services, and transaction services, through technical APIs. Banks’ compliance of PSD2 is sometimes referred to as open banking. The purpose of this report is to, from an academic perspective, explore the market changes in Sweden as of PSD2 and open banking. Specific theory related to technologies, and more general theory applicable on market change, disruption, and innovation, is used. Further, disruptive tendencies toward incumbent banks are analyzed. The study shows that there are reasons to believe that the industry has moved to an un-optimal state in terms of innovation, and that PSD2 can partly move it to a more efficient state. It shows strong incentives for collaborations between FinTechs and banks post PSD2 and open banking, based on utilizing each other’s strengths to enhance value offerings toward end consumers. The research concluded that there are no direct disruptive effects of PSD2 and open banking. However, PSD2 and open banking lowers the efforts for a business to configure itself as a marketplace bank. While incumbent banks rely on providing their own provision services and loans on their “platforms”, marketplace banking subjects these services to competition on a non-discriminating platform and thus potentially offers higher value to end customers. A conclusion is that the business model of marketplace banking has disruptive qualities.