The impact of PSD2 regulation on the financial performance of non-bank payment service providers: the case of Spain

To investigate the potential asymmetries of the revised Payment Services Directive (PSD2) in favour of non-bank payment services providers, as claimed by banks, this paper conducts a thorough analysis of the impact of this regulation on PayTech firms. Using the Spanish industry as a case study, we examine the investment, revenue, and profitability dynamics of all PayTech firms registered in Spain since 2010 relative to three different control groups—non-registered payment service providers, an extensive list of Spanish FinTech firms, and all listed payment firms in the USA and Canada (which operate beyond the scope of PSD2). The results confirm a significant increase in the investment rates of PayTech firms following the transposition of PSD2 into Spanish law in 2018, revealing the favourable expectations of these companies had of the new regulation. However, the impact on revenues is more modest, and more importantly, not only did the return on assets of PayTech firms fail to increase, but there is robust evidence of a significant decline relative to some of the control groups. The robustness analyses implemented confirm the main findings across different econometric specifications and data subsets. Our study contributes to the literature by providing empirical evidence on the effects of PSD2 on payment services firms, assessing the effectiveness of the current regulation, and offering valuable insights for policymakers in guiding future regulatory interventions.