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My opinion on the Payment Service Directive 2

Since the adoption of the first PSD in 2007, the EU retail payments market has grown significantly and several new players have emerged offering innovative solutions to consumers in the form of payment initiation services and account information services (TPPs). PSD2 formally brings these businesses into the scope of regulation, therefore providing for greater consumer protection and security whilst offering a framework that supports innovation, promotes competition and widens choice for consumers. In particular, TPPs can expect to benefit from a legal framework that supports access to accounts and prohibits banks from blocking such access other than for “objectively justifiable reasons”. 

 I welcome these changes as they will ensure that emerging payment technologies are afforded sufficient legal footing within the EU to challenge legacy solutions and foster innovation.  

PSD2 will also introduce a raft of new rules, some of which may prove challenging. These include liability allocation, transparency requirements and customer authentication measures, each of which will require careful consideration by market participants. Furthermore, the European Banking Authority (EBA) has been tasked with drafting and publishing technical standards relating to the provision of online payment services and exemptions to strong customer authentication. These technical standards will be awaited in anticipation by the payments industry due to their potential impact and the EBA will face some pressure to publish these in sufficient time for everyone to comply.

Once certain technical details of PSD2 have been finalised, it will be voted on and adopted by the European Parliament and the Council, following which EU member states will have two years to implement them into national law.

The consensus on PSD2 is great news for the payments industry in Europe, but only if the technical standards and security measures to be defined by the EBA will allow for practical implementation, create room for innovation and most importantly, support ease of use for the consumer. If the EBA can square this circle, the new regulation will promote technology on a European level and therefore encourage the Fintech environment to do what it is best at: innovate.

My opinion is that the consensus should be viewed positively because the increasingly popular real-time bank transfer payment method will become available across all of Europe instead of just the few countries where it has an established presence (e.g. Germany: SOFORT, giropay, InstantTransfer; Netherlands: iDEAL). From a merchant’s perspective, the benefits of this payment method are manifold: very broad reach, instant confirmation, no chargebacks and high security. In addition, lower fees will likely be charged compared to cards or other payment methods, given that there is no provision for any interchange fee and banks will not receive compensation for providing access to their accounts.

From a consumer perspective, this will allow anyone in Europe owning a bank account, i.e. almost everyone, to pay online without having to open and secure any additional account or payment instrument that could be hacked or misused. In addition to security, the advantage for the end users of this payment method is that they – not the merchant – are initiating the payments, meaning that they have full control of timing when funds are taken from their account and they do not have to disclose any sensitive personal data to anyone. 





Comments: (2)

Tom Hay
Tom Hay - Payment Systems Europe - London 01 June, 2015, 09:50Be the first to give this comment the thumbs up 0 likes

The fact that "banks will not receive compensation for providing access to their accounts" is certainly a benefit for merchants and TPPs in the short term; but a value chain in which one key party incurs costs but no revenues is unlikely to survive in the longer term. 

Ralf Ohlhausen
Ralf Ohlhausen - Pay Practice - Stuttgart 01 June, 2015, 11:10Be the first to give this comment the thumbs up 0 likes

Rightly or wrongly, interchange is trending towards zero, so I think it's right to not introduce one here. Banks have to charge their customers directly to offset their cost, not third parties. Having said this, they will also make money from TPPs if they agree to promotions or other marketing cooperations.

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