PSD2 opens up payments competition
The rules on the revised Payment Services Directive have been finalized by the European Commission (EC), allowing third parties to initiate payments between bank accounts. But should this be a cause for concern for the traditional players?
The new rules build on the first PSD, introduced in 2009, which helped to bring about the creation of the Sepa zone and a homogenized European payment environment.
The agreed directive is very new and there are still a lot of questions around security and credentials
The new directive covers two distinct developments. PSD2 opens up the payments market, enabling new players to come in and take some of the space held by the banks and cards companies. It allows for a third-party provider to initiate the payment from one bank account to another.
It also permits the aggregation of account information to be displayed in one place, potentially giving the corporate user an overview of their cash positions.
Jerry Norton, vice-president, financial services at CGI, says: “It will enable the aggregation of accounts via a third party who could for instance display the information of two accounts from different banks on the same screen to give even greater oversight of, say, account balances. The client can then initiate a payment through the third party to be made from one account into another."
The greatest degree of interest centres on the potential to move payments, and the opening up of a new pool of players to facilitate them.
Paul Thomalla, senior vice-president, global corporate relations and business development at ACI Worldwide, says: “With PSD2, third-party payment providers do not have to be a bank and, under this directive, digital service providers can now deliver payments."
The interest is coming from new players that can enter this previously closed space, and what cut of the market they will be able to take.
As changes are implemented, it will lay bare the charges that are being taken on each transaction processed.
Thomalla says it will make the current system more transparent, adding: “The new service will make it clear that the charges being added for cards are by the banks and will also expose how most banks are adding on a fee; from a consumer perspective, it’s about the regulators wanting to make things more cost-effective for consumers."
This could bring about a significant cost-saving on corporate transactions. The ability to move to using a cheaper third party could help reduce the costs for corporates on each payment they make.
Although the directive has been approved at EC level, there are tasks to overcome before the directive becomes a viable operating model. The implementation will not be straightforward as it has to be introduced in each European country.
Thomalla says: “The timing is to have this directive finalised by 2017 but, in reality, it will not be easy to implement in each country so quickly."
A concern that has already been raised is whether companies will be compelled to provide account details to their third party, but until the safety of the information can be proven it could be seen as another risk factor.
CGI's Norton says: “The agreed directive is very new and there are still a lot of questions around security and credentials."
Other concerns focus on the details that users will have to provide to the third party, including passwords or log-in details to give them account access. The third party can also see the information held within the account, raising potential issues around confidentiality, and wider issues on cyber security.
There are also split views on how willing corporates will be to use such an untested service.
Furthermore, rather than cutting the banks out of the equation, it could open them up to leveraging off their other strengths to provide a quality of service that the non-bank providers cannot offer.
Norton says: "This offers huge opportunities to customers, third parties and banks. It could also create a new opportunity for banks to participate differently with third parties. They could work more closely with them across accounts held in different currencies with other banks."
The banks might yet look upon the new ruling as something that is not going to gain traction and could siphon away little business from them.
Norton says: “From the banks' point of view they know they need to respond but it is deciding what to do. They might even feel it is not a threat to them."
Pascal Augé, head of global transactions and payment services at Société Générale, agrees, saying: “The banks are assessing if there is a threat from the new entrants.”
He says there are benefits to the banks looking at more collaborative ways of working to tackle the potential risk of the encroaching vendors, adding: “The focus is not to spend too much time and resources on developing too much proprietary new technologies.
"Instead there should be more attempts to try to share costs and innovation to create credible ecosystems.”