With the beginning of next year, the much talked about Payment Services Directive 2 (PSD2) will come into effect. Its purpose is simple – to bring competition and change to the incumbent sector of banking. The new legislation will create both challenges and opportunities for companies operating in the EU. Here’s what you need to know about it:
Timeline:
- 13 January 2018 – The directive will have to be implemented into the national legal systems of EU member states.
- November – December 2018 – The Regulatory Technical Standards (RTS) on Strong Customer Authentication (SCA) and Secure and Common Communications comes into force.
What does PSD2 mean for customers?
To put it simply, all the data that your bank holds about and for you will have to be made accessible to other parties through open APIs, if you so choose. This means that the next time you try to make a purchase on Amazon, for example, the website will ask you for permission to access your bank account details and, if you accept, your bank will have to provide them. Doesn’t Amazon already do this? Yes, it kind of does. The difference is that right now it uses the services of intermediaries such as PayPal to perform the task, but after PSD2 comes into effect, it will be able to obtain the necessary information and bill your bank account directly. Companies that perform such services are called PISP (Payment Initiation Services Provider) in the new legislation.
In terms of internet purchasing, things will change, but not by much. Since the middlemen that were somewhat responsible for the safety of transfers are being squeezed out by the PSD2, stricter authentication procedures will be implemented. Two-factor authentication will probably be the required minimum when dealing with PISPs and AISPs (we’ll get to these in a moment). This means that even though you won’t need to use PayPal anymore, the number of steps to make a purchase most likely won’t decrease by much, if at all.
Some specific benefits which will make payments safer and less expensive, like the unconditional right of refund for direct debits under the SEPA CORE scheme and a ban on surcharging (additional costs) for card payments, are being introduced, but the biggest difference for the end user will come in the field of personal finance management. Anyone will be able to share their financial data with aggregators, which will process it and show it to the user all in one place – something that will come in handy, especially if you have multiple bank accounts across different banks. The providers of such services are called AISPs (Account Information Service Providers) in the new legislation.
And for banks?
The PSD2 will make the banking sector ripe for disruption by both small, niche-oriented service providers as well as mega-companies like Amazon, Google and Facebook. Banks will retain the exclusivity of holding someone’s monetary assets for now, but everything else is up for grabs – the precious data that was hidden in bank databases around the world will become widely accessible and since data is the new oil, you can bet the competition will be fierce.
The new rules are, of course, disheartening for the banks, which would rather keep the data for themselves if they could, but there are opportunities hiding in the weeds. Because they already possess the infrastructure to process the banking info of their own customers, they have a running start compared to outsiders when it comes to taking on the AISP role. Those that embrace the change and take care of the underlying technical aspects the quickest might just find that the new legislation is a blessing in disguise.
Some sandbox solutions like the Open Bank Project and AplonAPI have already sprung up and both banks and other interested parties are using them to get a feel of the new landscape and its possibilities. Exactly how much the EU banking sector will change because of the new legislation is anyone’s guess, but the increased competition is certainly going to make it a lot more interesting.
P.S. If you are more the visual type, check out this highly informative PSD2 infographic by the European Payment Council.
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