From the questions (41-45)
In Britain alone millions of people make formal complaints each year about their banks. For them, new European rules, will open the door to a host of innovative services that analyse transactions, so an app could tell you there's a cheaper mortgage available and start the switching process for you. Apps could warn account-holders if they spend more than a predetermined amount or are about to become overdrawn, or even nudge them to save more. Customers need barely ever interact with their bank. To date, despite dire warnings, European retail banking has been remarkably unscathed by technology-driven disruption. Customers stay loyal, and banks still do the most of the lending. Financial-technology ("fintech") companies are beginning to mount a challenge, most conspicuously in the online-payments industry in northern Europe: Sofort, IDEAL and other fintech firms con-duct over half of online transactions in Germany and the Netherlands, for example. But their reach is more limited elsewhere in Europe. Physical payments are still overwhelmingly made with cash or bank cards.
One reason incumbents have proved so resilient is that fintech firms lack the customer-transaction information they need to provide many financial services. Banks can be slow to respond to requests for access to such data, or may block them altogether for security reasons. It is often either cumbersome or in-secure for customers to share their own information. Banks, on the other hand, have easy access to trans-action data, which they can use to sell their customers other services. Regulators, however, are about to transform the landscape. The Payments Services Directive 2 (PSD2), due to be implemented by EU members in January 2018, aims to kick-start competition while making payments more secure. Provided the customer has given explicit consent, banks will be forced to share customer-account information with licensed financial-services providers.
This should change the way payment services work. They could be-come more integrated into the internet-browsing experience- enabling, for example, one-click bank transfers, at least for low-value payments. Security for payments above 30 ($32) will be tightened up, with customers having to provide two pieces of secret information ("strong authentication") to wave through a transaction. With access to account data, meanwhile, fintech firms could offer customers budgeting advice, or guide them towards higher-interest savings accounts or cheaper mortgages. Those with limited credit histories may find it easier to borrow, too, since richer trans-action data should mean more sophisticated credit checks.
None of this is good news for established banks. Profitability is already threatened by rock-bottom interest rates. In a survey conducted last year by Strategy &, a professional-services firm, 68% of responding banks believed that PDS2 would leave them in a weaker position. The same proportion feared that they would lose control of interactions with customers. Perhaps predict-ably, resistance is manifested as a concern about data protection: more than half of respondents to the PwC survey voiced concerns about security and liability. Such concerns are legitimate but also, argue fintech supporters, offer a convenient excuse for banks to block competition. Newcomers will be regulated, after all, and will have to convince the authorities that their data-protection systems are robust. As they are also required to be insured against fosses from fraud, they will need to convince insurers, too. They will not be subject to the same capital and stress-testing requirements banks face: but nor will they be licensed to undertake the riskier business of lending.
So PSD2 is "perfect on paper". But as implementation approach-Ies, the rules will be watered down.
Banks could also interpret them subjectively: they might delay sharing data or make them too confusing to be useful. But regulators have already bared their teeth: last year German competition authorities, citing the changes proposed in PSD2, ruled that banks were illegally restricting customers' online-banking activities. Banks will have to improve, in other words. Santander's British arm, for instance, has teamed up with Kabbage, an American startup, to offer small companies working-capital loans; BBVA, a Spanish bank, acquired Holvi, a Finnish startup that helps companies track cashflow and invoices. Yet for all their complaints, customers still trust banks with their money. In Britain only 3% of customers move current accounts each year. Familiarity, huge customer bases and low funding costs are all attributes entrants want to gain by association, just as banks want to exploit newcomers' technology.
Which of the following is/are the impact(s) that fintech firms have had on the banking sector?
(A) Dissatisfaction among customers and millions of formal complaints each year.
(B) Fintech firms are sapping the profitability of banks but will not kill these (banks) off.
(C) Banks have been incentivised to improve their services.
