Impact of FinTech on PIs and EMIs business models

Fintech law firm in Lithuania
Sigita Zavišienė

Financial Law, Compliance & AML


The payments landscape in the EU is undergoing significant transformation due to the introduction of the revised Payment Services Directive (PSD2) and the ongoing FinTech developments. Taking this into account the European Banking Authority (EBA) published a Report on the impact of FinTech on payment institutions’ (PIs) and electronic money institutions’ (EMIs) business models.

This Report points out the key observations on PIs’ and EMIs’:

  • strategies and business model changes (focusing on the current trends and drivers);
  • the different approaches to FinTech;
  • interaction with BigTech firms;
  • the level of implementation of innovative technologies.

According to the Report, most PIs and EMIs are adapting their business models to cope with the competitive pressure/embrace PSD2 changes and most PIs and EMIs are keen to expand their products/services and enter new markets by:

  • leveraging on the cross-border services;
  • requesting a license to become a credit institution or third-party provider;
  • embracing the new services provided under the PSD2.

The Report also notes that the main threats/challenges for PIs and EMIs are:

  • participation of BigTech firms (expansion of BigTech firms into mobile payments can affect PIs and EMIs by BigTech firms levying fees on them for access to the technology the BigTech firms provide, and by altering the customer relationships);
  • the uncertain impact of Brexit;
  • the key dependencies on banks and card processors;
  • operation resilience and ICT security;
  • operational capacity;
  • regulatory changes;
  • customer education;
  • acquisition and maintenance of skills and talent.

It is interesting to note that the significant number of PIs and EMIs partner with FinTech firms and technology providers for the development of innovative products.

Also, PIs and EMIs are active in the development and use of the following FinTech applications:

  • use of APIs for product integration and information exchange;
  • use of facial / video recognition for know–your–customer (KYC) purposes, which combines computer vision with knowledge of human physiology and behavior;
  • use of robotic process automation for automation of repetitive manual tasks and execution of workflows;
  • use of machine learning for prescriptive analytics, for strategic planning, operational and tactical activities, and predictive analytics to automate support for decision–making;
  • use of natural–language processing for automated processing of structured text, including information extraction and document verification;
  • use of cloud electronic identification and signatures with mobile authentication.

The EBA points out that new services provided under PSD2 (account information services – AIS and payment initiation services – PIS) could potentially add value to PIs’ and EMIs’ business in a number of ways, such as:

  • allowing customers to have an aggregate view of their account services data;
  • allowing the use of alternative payment channels in e-commerce;
  • enhancing KYC procedures, and customer eligibility and credit assessments;
  • providing opportunities to share services across borders;
  • being useful in consolidating legacy services into technology-based innovative products.

In the EBA’s view, data access and customer consent are becoming prominent, placing customer trust as one of the cornerstones of the upcoming data-driven environment. The implications of data sharing, including corresponding contractual assurances, may change the current competitive landscape while the interaction between PSD2 and General Data Protection Regulation (GDPR) may produce further challenges that need to be addressed.

Taking this into account financial institutions should collaborate with experienced compliance experts who could help with daily challenges and with the changing legal environment.

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