The European Banking Authority (EBA) has released its thematic report on the impact of FinTech on payment institutions (PIs) and electronic money institutions (EMIs) business models.
Its new report monitors the strategies and business model changes of PIs and EMIs, particularly the current trends and drivers, different approaches to FinTech and the implementation of innovative technology.
The aim of the report is not to model scenarios for potential future development of institutions, instead it’s there to offer support to supervisors and stakeholders in understanding trends which could impact PIs and EMIs, it said.
Following its observations, the EBA believes most PIs and EMIs are adapting their business models to cope with competition pressures and embrace PSD2 changes. Most institutions are eager to expand their products and services.
Additionally, most are looking to enter new markets either through cross-border services, requesting a licence to become a credit institution or third-party provider, or integrate new services offered through PSD2.
There is still a trend towards internal development of FinTech products and services, a large percentage are partnering with existing FinTech players.
One finding of the EBA’s report is that ‘BigTech’ firms pose a potential sustainability threat to PIs’ and EMIs’ business models and so, institutions are looking to increase their customer loyalty.
Overall, the EBA believes the outlook of the payments sector is positive in terms of probability and revenues, with it predicting an increased customer base and revamped products.
The report also offers a comparison with a recent report from the EBA on credit institutions which suggests a relationship between the growth of the payments sector and the disintermediation in banking, it said.
There are different threats facing PIs and EMIs, based upon their business models. Some of the challenges include the impact of BigTech firms, uncertainties of Brexit, and dependencies on banks and card processors.
Several other challenges also need to be addressed the report states, including operation resilience and ICT security, operational capacity, regulatory changes, customer education and acquisition and maintenance of skills and talent.
Moving forward, the EBA will continue to monitor the developments, the pace of technology deployment in financial services and conduct additional work to enhance supervisory consistency.
