By frode lervik and anders w.a. olsen, PA financial services expert
The new Payment Services Directive, known as PSD2, is just around the corner – regulatory speaking.
That is, the directive entered into force on January 12 this year, and the deadline for transposition into national legislation is January 13, 2018. Insiders will know that it has quite a long history within the EU system already and deeming by the loudest reactions, it has managed to frustrate, annoy and worry quite a few for some time already. So what is all the fuss about?
PSD2 is a revision of the first Payment Services Directive. PSD1 was put in place to increase competition in the European payments market and to strengthen consumer rights by implementing the same set of rules across all of the EU and EEA. PSD2 extends the scope of the first directive in several areas.
Among other things, it brings so-called one-leg transactions, transactions to or coming from the Single Euro Payments Area (SEPA) into scope, increasing the scope of the directive significantly. Furthermore, it aims to break down barriers and increase integration in the European payments market by facilitating market access through easier cross-border service-provision. Its companion, the Interchange Fee Regulation (IFR) for card-based payment transactions, is already having impact. It challenges the existing market structures and in particular major card schemes like Visa and MasterCard.
This was quite evident in the interaction with the regulators for those present at the recent IFR hearing organised by the European Banking Authority in London.
However, these are not the main points causing controversy. To understand the main grounds for the heated debate on PSD2, you should focus on understanding the concept of a 'payment initiation service provider' (PISP, an 'account information service provider' (AISP) and an 'account servicing payment service provider' (ASPSP).
With the introduction of PISPs and AISPs, PSD2 regulates a new set of payment service providers that are allowed to initiate payments and display consolidated information from one or more accounts a user holds with other payment service providers.
This brings us to the last term: the 'account servicing payment service provider' or the ASPSP. The ASPSP provides and maintains accounts. Or in plain English: traditionally the core business of a bank. The PISPs and AISPs base their payment initiation and account information services on access to these accounts, and PSD2 makes it clear that giving access to PISPs and AISPs is mandatory for the ASPSP.
There you have it. PSD2 puts a whole new framework in place that has the potential to fundamentally challenge the incumbent banks’ position, turning them into ‘account servicing payment service providers’ as illustrated below.
PSD2 does so, not only by defining new categories of payment service providers but also through a number of very specific articles that aim to secure access to accounts for the PISPs and AISPs and prevent ASPSPs from obstructing their access.
However, this should not be interpreted to mean that PISPs and AISPs are given unconditional access to the bank vault. Contrary to the impression you get when listening to some industry representatives, PSD2 also sets a number of rules for PISPs and AISPs and brings these service providers explicitly into the realm of union-wide and EEA supervision.
To understand the challenge for the incumbent banks, it is not enough to focus on payment services and payment transactions only. You really have to look at the potential power of the combination of payment initiation services with account information services to create new, sophisticated financial aggregation, money management and advisory services.
Essentially, PSD2 drives down the barriers to entry for new competitors to the banking industry and gives new service providers the potential to attack the banks and disintermediate them from one of their primary customer touchpoints. With the customer journey becoming digital and mobile, this is a battle that the incumbent banks cannot afford to lose. At the same time, new players backed by strong investors are ready to give incumbents a serious run for their money.
For those involved in the payments and financial services industry, PSD2 in combination with other industry developments will require a continued, intense effort to create and defend competitive advantage over the coming years. Regulators are likely to be challenged both with regards to their view of the competitive landscape, consumer protection and the processes needed for effective market supervision.
For consumers and businesses this has the potential to stimulate innovation and result in new, innovative and more value-adding financial services but perhaps also to create a multitude of disparate offerings that just increases complexity. There is no doubt that we have exciting times ahead.
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