My initial understanding of PSD 2 led me to believe that it was just another enabler for digital payments and aggregated account information.
However , what completely missed my attention was the sweet spot of the P2P Lenders.
Traditionally banks have played the middlemen in sourcing funds from depositors and funding loan requirements of one or more borrowers. New P2P lending digital platforms match the borrower directly with the lender and use multiple data points to determine the creditworthiness of the borrower in addition to financial data provided.
Insight into Borrower Spend Patterns
While earlier the data was focused on getting account balances and historical borrowing and repayment information , PSD2 makes it available to analyze spend patterns and draw insights into the intent of the borrower as well. If money is spent on online gambling, a lender has the choice to deny loans although the borrower has a good credit history of repayment but a gradually declining average balance across his multiple accounts which was otherwise difficult to spot earlier.
Reduced Cost of Credit Scoring
PSD2 APIs will be used to source real-time account information with complete payment data of the borrower leading to better credit analysis . This entire process earlier involved multiple touchpoints for API integration and data ingestion. Yet , a lot of it was still best effort basis estimation based on predictive modelling technologies . Expensive AI and analytics capabilities provided the competitive edge to platforms and the game-changer was technology investment. With PSD2 , technology is an enabler for a fair playground with the focus being on the loan product offered and the services around it.
Additional Value Added Services such as Repayment Assistance
With the ability to now have an insight into repayments and account balances , newer players who offer repayment assistance and restructuring services even for retail banking may well spring up. That is exactly what PSD2 aims to do. Create a playground for innovation while ensuring transparency and regulatory checkpoints.
The ‘Born Digital’ Advantage
These P2P lenders or online market place lenders are born digital , architected for API banking and with PSD2 , the cost of risk management improves .
Killing the credit card
PSD2 seems to impose a threat on Visa and Mastercard . Also predicted is either a steady decline or emergence of differentiated services or pricing Point-of-sale loans may well see a rise under this albeit short term.
My PSD2 observations are fairly derived from more academic reading and I look forward to receiving comments and stories on how your institutions or clients are dealing or re-inventing with PSD2 , specifically credit institutions, lenders , fintechs and e-commerce.