Europe’s banks look to compete together against FinTech threat

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The heads of several large European banks have told the Financial Times that they are in talks about jointly setting up a cross-border instant payments service.

The details are sketchy so far and the talks may not be very advanced. But one thing is clear: the decision by the banks to discuss teaming up is a response to the increasingly competitive landscape for payments in Europe.

As well as dozens of FinTechs, such as Transferwise or Azimo, offering to move money overseas quicker and more cheaply than the banks, there is growing interest in the payments space from big technology groups like Facebook, Google and Apple.

Several banks are already offering instant euro payments to some of their clients in Europe after EBA Clearing launched a new real-time service last month. The so-called RT1 system is already being tested by 17 banks to handle more than €1m of transactions a day.

Andreas Treichl, chief executive of Austria’s Erste Bank, told the FT it was talking to several other European lenders about creating a real-time payments service that would allow consumers to send money to each other and pay for goods across borders.

Mr Treichl said the talks were designed to see off the threat of technology companies like Paypal, which are offering consumers convenient, quick and low-cost payment services – such as its Venmo app in the US – by piggybacking on the banking system.

Paypal, which expects its revenues to grow by a fifth to almost $13bn this year – more than many European banks – boasts that it can send money in 25 currencies to millions of people around the world in only 20 seconds using their email address.

“We can kick Paypal out,” says Mr Treichl. “Some threats are an opportunity,” he adds, referring to the EU’s second payment services directive, which will force banks to provide access to their customers’ accounts for any fintechs that are given permission.

The new EU law, which comes into force early next year, is expected to intensify competition in the payments market. For banks, this is a double threat. It could shrink their market share and squeeze profit margins on their remaining business.

Potentially more painful, though, is the risk that banks lose control of the data on what their clients are doing, which could soon become the most valuable part of the payment transaction. This data could help banks to cross-sell other suitable products or to collate consumer spending trends and sell it to companies.

“It is all about keeping the relationship with the customer,” said Rune Bjerke, chief executive of Norway’s DNB, another of the banks discussing the new pan-European instant payments service.

“We will lose some margin in some areas, but we will have revenue opportunities in others,” Mr Bjerke told the FT. “The value of information – that has not been part of the business model until recently, but it could be a revenue opportunity for banks.”

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