The Payments & Cards Network dived deep into PSD2, what it entails and what it means for the payments industry. We sat down with Francesc Altisent, payments expert with a great deal of knowledge on PSD gathered by years of professional working experience in the industry. We discussed various points of attention regarding the Directive and here is what he has to tell us.
PSD2 is the second Payment Service Directive approved by the European Union that is expected to regulate and define the framework of activity of banks and financial institutions in the years to come.
It is important to mention the letter D from Directive, which means that after the official approval was given by the European parliament at the beginning of October, every local parliament in the European Union has 24 months to transpose it to the local regulation. That is when PSD2 will start to mean something very specific for PSPs, banks, other payment institutions and ultimately for Customers and Merchants.
As for many other initiatives raised by the European Union, this directive is two fold (legal security of certain practices & foster free market as well as competition through the EU).
On one hand, it is intended to provide legal security to certain payment initiatives and practices that have been generalised in the market in the last few years such as account aggregation by third parties or payment instructions on behalf (i.e. money supermarket) of the Consumer (i.e. Sofort); it will protect both the Service Providers and the Consumers using them.
On the other hand, it will open up the European market and allow Customers and Merchants with a new (or so it would seem) set of competitive payment instruments that are challenging the already existing established payment methods like cards.
Simply put, Customers and Merchants from anywhere in Europe will be able to enjoy a new host of competitive instruments originally created for other markets.
As most of the analysts in payments I consider that the most relevant is the creation of two very well defined entities and the roles that these can perform. The AISP (Account Information Service Provider ) and PISP (Payment Initiation Service Provider), by themselves have the power to capsize the current payment ecosystem.
AISP will be allowed to provide aggregated Account information to the Customer that has been collected from one or more Payment Institutions. The PISP will be allowed to instruct payments on behalf of the Consumer through their bank account.
All this will be possible through a mandated subset of APIs that the account holder institutions (mostly banks) will be required to define and standardise according to what the EBA will define in a year and a half from now. The best part is that the Consumer will be allowed to provide recurring authorisation to receive these services over time.
In my opinion, it really depends on the eyes that you look at it through. I consider that looking to compliance projects (PSD2 is one of them) with the eyes of “I am forced to do this” is not the right way of viewing compliance. My approach to compliance is “compliance++”, in the sense that financial institutions are mandated to create/control/modify/etc., but they should not stay there if they are willing to lead in the post-compliance scenario.
What the regulator does not say, and this is where Advisors play an important role, is how the same regulation or directive can be pushed to its limits to provide new business cases and new revenue streams for financial institutions and also banks.
A specific example in relation to what we discussed in the previous question, PSD2 defines the mandatory existence of a subset of APIs for the banks to offer account information and payment initiation. Why banks would not think also about offering APIs to provide identification services (based on the KYC they already collected for years)? As side note, while payment transaction costs are in the cents or tenths of cents, identity transactions are in the euros or tenths of euros.
I think that slowly the payment community is getting more and more aware of the existence of PSD2. Maybe because now it is a reality. And well, a lot of people still think that PSD2 will be like SEPA, something that was done last minute.
However, I think that the first in the class are already starting to take positions for the race and start to propose how the status quo can be leveraged before the deadline approaches. I have been in discussions with various large European players and most of them are already taking specific actions towards taking advantage of the new PSD2 regulations.
Let's keep in mind one thought, the early thought leaders of today are going to be the ones with a bigger advantage tomorrow.
PSD1 was followed by the apparition of plenty of alternative payment methods and PSPs, due to the clearly defined framework that followed that directive. I think that PSD2 will bring to the payments market the API hubs.
Why this and not something else? Everything comes from tight to impossible deadlines defined to all parties by these directives (18 months to define the standard by the EBA and 6 additional months for the going live) and the uncertainty surrounding them. Dynamic organisations are needed to provide a steady interface with the existing banking players that can be adapted once the regulation appears and requires to do things a certain way. Welcome to the world of the PAPISPs (Payment API Service Providers).
They will or they won't is up to them. I think that they should, otherwise they risk losing a large part of revenue. And honestly, PSD2 has been approved only a few months later than the MIF and in conjunction with the instant payment debate. I think that there are too many risks in these three topics for not taking them into account, evaluating them and providing an aggressive business plan to leverage what they can bring to the banking ecosystem.
Customers and Merchants are still suffering today the banking practices that started 50 years ago. The European Union has created this directive to open the market to new players, I think that the application of this directive will only bring good things to the final stakeholders eg. Customers and Merchants. It may come with some suffering from the banks, but they now have the choice to suffer or to leverage. It is ultimately up to them what they prefer.
PSD2 represents an unprecedented ocean of opportunities for new entrants in the payment ecosystem. Creative thinking will allow existing payment institutions to diversify their business and prepare for the future in a steady way. Compliance ++ is the way to go, anything else is exposing oneself to loss of business in the years to come.
This article is from Vol.1 - Issue 6 of the Payments & Cards eMagazine (PCM), you can view the full issue here.
SlimPay is a provider of smart recurring payment API, ideal for organisations of all sizes operating in payments for subscriptions or pay-as-you-go businesses. Please visit SlimPay here: www.slimpay.com
Francesc Altisent, Payment Advisor & Solution Expert, SlimPay
Francesc is an independent Payment Advisor & Solution Expert. He helps financial institutions identify valuable ideas and opportunities to move forward in the ever changing payment ecosystem.