The Second Payment Services Directive (PSD2) is a payments regulation in Europe, which is set to drastically impact the infrastructure of banks, fintechs and businesses using payments data by opening up access to third party providers.
The regulation requires that all member states implement these rules by 13 January 2018. We recently broke down everything you need to know about the regulation on our sister website bobsguide, and today we’re discussing the opinions of industry leaders on PSD2.
“It will be interesting to watch the introduction of PSD2 unfold. I think it has the potential to instigate a significant shift in the payments landscape. PSD2 helps instant payments between bank accounts to develop, potentially at the expense of traditional card payments. In order for this to work, integration must be achieved within the banking system. Currently, banks are working hard to achieve this, but it is not an easy task. Everything is still very manual in the correspondent banking industry, i.e. cross border payment reconciliations,” says James Morton, Mangopay Country Head UK & NL.
“Furthermore, greater numbers of companies will enter the tri-party payments space in order to continue their growth, as according to the incoming regulation, marketplaces will not be able to escrow funds for third parties without a license. This makes integrated third party payments solutions even more relevant and we believe this new way of working will strengthen MANGOPAY’s position in the market as a white label provider with an e-money issuer license,” adds James.
Christian Schaefer, Head of Payments, Cash Management Corporates, Deutsche Bank says: “PSD2 has the potential to revolutionise payments: introducing innovation and enhanced flexibility. Certainly, PSD2 will encourage collaboration between the varied players across the financial landscape by recognising and regulating third-party providers – creating a secure and transparent environment for the creation of disruptive payments technology. ”
“While PSD2 includes many developments, the three most significant changes work to expand scope, enhance security, and regulate third party providers. The changes reflect some of the major developments across the European payments landscape over the past decade,” adds Christian.
“For one, the type of payments made and the companies making them has significantly expanded since 2007. As such, PSD2 captures a wider range of payment transactions than its predecessor. It will extend the scope of provisions to include payments where only one payment service provider is located in the EU/EEA, and to payments in all currencies – not just those of EU/EEA member states. It is important to note that the scope extension is not applicable to all provisions of PSD1.
“Secondly, as cybercrime becomes more sophisticated, so do the efforts to combat it. Authentication has become more advanced – with a host of new measures available from tokenisation, to sophisticated biometrics that register fingerprints, irises, heartbeats, and even palm-size measurements. PSD2 will strengthen the customer authentication processes for electronic payments and remote account access by requiring “two-factor” authentication for all electronic payments and remote account access (although certain payments will be exempt),” Schaefer continues.
“Finally, PSD2 will license a selection of “third party providers” to deliver specific kinds of payment-related services, the most important of which are payment initiation service providers (PISPs) and account information service providers (AISPs). It does so in recognition of the importance of third-party providers to the payments landscape – creating a regulatory framework that enables secure collaboration between all players, and encourages innovation.”
“From January 2018, banks will be forced to open their data vaults through mandated Application Programming Interfaces (APIs). As a result, third parties will be able access (anonymised) customer data to provide new products and services. The goal, beyond compliance, is to break the banks’ monopoly on data and open the market to new innovations,” says Bragi Fjalldal, CMO and VP Business Development, Meniga.
“The main goals of the new PSD2 is to contribute to a more integrated and efficient European payments market, improve the level playing field for payment service providers, make payments safer and more secure, protect consumers and encourage lower prices for payments. Furthermore the PSD2 will push the boundary of open banking across European Union and bring more control over personal financial data in favour of the consumers. At it’s core PSD2 will impact two things: the flow of payments and how we access our finances,” he adds.
David Song, Payments UK’s Manager of European Developments says: “PSD2 will set out a common legal framework for businesses and consumers when making and receiving payments within the European Economic Area (EEA) – which comprises the 28 European Union Member States plus Norway, Iceland and Liechtenstein – and outside the EEA.
“The PSD2 text makes it clear that customers have a right to use what are termed Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs), where the payment account is accessible online and where they have given their explicit consent. These changes reflect the market growth in e-commerce activities and use of internet and mobile payments as well as the rise of new technological developments and a trend towards customers having relationships with multiple account providers. This will make internet and mobile payments easier and help customers to manage their accounts and make better comparisons between them.”
According to industry leaders, these regulatory changes are forcing banks to embrace new technologies to reduce costs and deliver more client benefit. This is especially true in commercial payments, where some industry leaders perceive significant market inefficiencies at present. Alex Mifsud, CEO of Ixaris, a provider of on-line commercial and travel payments solutions, notes that: “There are a range of structural inefficiencies in current payment technologies which are currently being addressed by retailers, but given less attention in the commercial sector.”
So much promise, so much innovation – but to what extent are commercial payments changing in reality? Alan Hawkins, Head of Commercial Cards at ING, says the sector is booming – and that new technologies are the main drivers of growth. “Whilst our traditional business is still growing double digits each year, our virtual cards for corporates – the capacity to pay safely on-line without using a physical card – is growing at more than 50% a year.” For Hawkins, travel intermediaries/ online travel providers have led the way in using virtual cards, and banks and their clients are now turning to associated vertical sectors, such as hotels, meetings and event spaces. The client benefits are clear: control, security, convenience and reconciliation.
With PSD2 signalling a shift in the balance of power in banking, it will be interesting to see how the regulation affects financial services and fintechs on the journey to open banking.
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