The First Payment Services Directive (PSD) of 2007 uniformly regulates all services providing the remittance of money, the execution of payment transactions, cash withdrawals, the placing of cash on a bank account as well as the issuing and acquiring of payment instruments (EU Parliament and Council, 2015, 36). Since then, smartphones have become very popular, e-commerce has grown enormously, and the market entry of financial technology companies, the so-called fintechs, has created new opportunities for non-bank payment services. Thus, there is a need to adapt the rules of the PSD (EU Parliament and Council, 2015, 36).

Adapting regulation to innovation

Until the PSD2 regulation, some of the new competitors with their innovative business models were not covered by regulation (Figure). One of the reasons for this is that fintechs only need a banking license if their business involves transactions in securities, loan origination, the execution of payment transactions or deposit-taking. As long as they only provide technical support to a bank, they do not need such as license. Technical support includes, for example, the provision of software and hardware.

The European Banking Authority (EBA) estimated a total of 1,500 fintechs in the EU in 2017 (EBA, 2017a, 20). For 282 of those, the EBA had detailed information allowing for a determination of the relevant regulation. The EBA found that 31 percent of those fintechs were not regulated. For another eight percent, the regulation was unknown. Only 18 percent fell directly into the scope of the PSD. Another two percent had a novel business model that was also covered (so-called hybrid payment service). Eleven percent were classified as an investment company, nine percent as a bank, and seven percent as an e-money institution and were regulated accordingly.

Fintechs obtain insight into the finances of bank customers. Precisely because access to the accounts and the financial data contained therein are sensitive information, regulation seems to be necessary (EU Parliament and Council, 2015, 39).