Ask the panel: We spoke to experts about what PSD2 will mean for their industry, and who will benefit the most.
Colin Darby
Managing Consultant, Bovill
1. What is the biggest impact that PSD2 will have on your industry?
The main industry impact is likely to be greater collaboration between credit institutions and payment service providers which should result in broader customer choice on how to make payments and manage payment accounts. In combination with other changes, such as Open Banking, the re-launch of RTGS and the re-design of the UK payments architecture, payment value chains may feature less actors, making payments cheaper, faster and more secure. From a regulatory consulting perspective, PSD2 has driven increased demand from payment service providers and will likely continue to do so in the short to medium term.
2. PSD2 – Opportunity or threat?
From an industry perspective, PSD2 is both an opportunity and a threat. Third Party Providers will have enshrined rights to access payment account data held by banks and other payment service providers. Established service providers are reinvigorating their service offering to stay relevant to their customers. Implementation brings change and development costs but ongoing operational costs and payment fraud losses should decrease. Some existing payment firms may find that they are denied re-authorisation given the heightened regulatory requirements. For customers, some may use online payment initiation in favour of card-based payments whilst some will be concerned that increased digitalisation will put their data at greater risk.
3. How to make the best of the API economy?
Uptake of API-based services will largely depend upon the appetite of payments customers and therefore trust in the system. Banks, payment service providers and third party providers will therefore need to demonstrate, on an ongoing basis, that customer and payment data is secure, payments are accurately executed on schedule and API-based services have consistently high degrees of reliability. Regulators have already acknowledged that achieving PSD2 compliance and Open Banking will be evolutionary rather than a ‘big bang’. To extract best value from APIs within financial services, regulators will need to continue to foster innovation whilst protecting the integrity of the payments sector.
4. In your opinion, who is the biggest winner from PSD2?
Payments customers are likely to be the biggest winner as they should have more choice, receive greater transparency, better payments service and at lower cost. Third party providers (i.e. Account Information Services and Payment Imitation Services) will also be winners as although they will need to be regulated, they will have a legal basis for the data access that is fundamental to their service offering. The existing payment service providers which are quickest to adapt effectively may also be winners as they are most likely to collaborate with new entrants and maintain customer relevance.
Marten Nelson
Co-Founder and Marketing VP, Token
1. What is the biggest impact that PSD2 will have on your industry?
The biggest impact will be the new business models that will be created for banks that choose to take a strategic approach to open banking. The applications that will be enabled in a post-PSD2 world will change the way we do banking across Europe. The analogy that we like to use is similar to the mobile phone: When it first came out, the mobile phone was the best thing ever and perceived as the ultimate device. And then when we really could not imagine anything better, the smartphone came along, and in just seven short years the mobile phone disappeared. What was perfectly fine and wonderful disappeared because new technology came out that was, simply, better.
2. PSD2 – Opportunity or threat?
PSD2 is an opportunity – a common API and platform for banks and fintechs to share data will enable players to collaborate which, for banks, is one of the most convincing reasons to get on board with the open banking opportunity. Instead of a customer ditching a bank and going to a fintech, if that bank and fintech collaborate, that customer can leverage the services of both players.
Competition is good, and that’s one of the reasons why PSD2 is coming into force. Regulators want to see more competition that will help banks deliver better services. Banks in Europe realise they now have to do more than they have before to satisfy their customers.
3. How to make the most of the API economy?
To make the most of an API economy in banking we can look to other sectors where this approach is familiar, for example, healthcare or telecommunications. PSD2 will enable a similar approach to be brought to the forefront in banking. Many banks have been using internal APIs for years, however, the opportunity to use them to externalise information safely and securely is now equally important. In an API-driven economy, it is about making sure that you as a customer receive the best user experience regardless of where you bank. A balance of great user experience and security will drive the API economy going forward.
4. In your opinion, who is the biggest winner from PSD2?
The winners will be those that think beyond compliance. It is not just about complying with PSD2, it is about ‘what is beyond PSD2’? How will open banking look and what will your banking experience look like in the future? You do have institutions that are looking just to comply, who are saying, “I have account information that I have to open up to third parties. I just need to tick that box”. But the ones that think strategically and long-term about what the next ten years will look like, are the ones that will come out on top.
Eric Leenders
Head of Personal, UK Finance
1. What is the biggest impact that PSD2 will have on your industry?
UK Finance anticipates that the changes under PSD2 and Open Banking will result in the development of products and services that allow customers to optimise the use of their account and transaction data, with value-added services that could easily go beyond payments, financial services and e-commerce and provide consumers with more choice. These include access to new financial – and non-financial – products and services tailored to the customer’s financial profile such as apps that automatically move your spare cash to a savings account or help you manage your day-to-day budgeting.
The changes could help open up new markets and encourage new entrants, some of whom will offer services that support people who are currently financially excluded. In addition, there are a whole host of opportunities that it may not be possible to fully anticipate which could hugely benefit customers.
2. PSD2 – Opportunity or threat?
PSD2 is an important step towards a Digital Single Market in Europe, which aims to make the current EU landscape fit for the digital age. The new measures will also ensure that all Payment Service Providers (PSPs) active in the EU are subject to supervision and appropriate rules. As such, there will be wide-reaching implications for a range of parties including banks, other PSPs, FinTechs with a whole host of opportunities that could benefit customers.
3. How to make the best of the API economy.
Our view is that the interaction between customers, payment initiation services, account information services and their account provider as described in PSD2 is most effectively achieved via an open API infrastructure that enables a customer-driven experience: the customer is in control of what can and cannot be shared with a third party, as the API is consent and permission-driven.
These changes will result in the development of products and services that allow customers to optimise the use of their account and transaction data. This could help to assist in the switching of accounts or provide a better reflection of customer affordability of financial products, helping customers save money or to make more informed decisions on their purchasing.
4. In your opinion, who is the biggest winner from PSD2?
PSD2 aims to increase competition in an already highly competitive industry, improve innovation across the EU and bring into scope new types of payment services to enhance customer protection, building upon existing consumer protection rules. UK Finance sees the customer as the biggest winner from the changes PSD2 brings to the market.
Paul Rodgers
Chair and Founder, Vendorcom
1. What is the biggest impact that PSD2 will have on your industry?
PSD2 has already provoked a welcome, fundamental mindset change in the payments sector raising the prospect of greater collaboration. If the industry can recognise the far-reaching benefits to be gained by radically rethinking financial supply chains in the same way that 20 years ago we saw a transformation in physical supply chains, we will see the power balance in the financial sector change dramatically. It’s hard to predict exactly where the impact will be greatest as that will depend on how the main protagonists respond. The greatest short-term impact will be the confusion caused by opportunistic innovators trying to make a land-grab with conservative end users.
2. PSD2 – Opportunity or threat?
Any change of this magnitude brings both opportunity and threat. The greatest threat is to over-promise on the opportunities in the short to medium term. The ultimate opportunity is to finally bring about the networked effect of authenticated transactions in the same way as central power generation matched with effective power grids delivered the economic benefit of electricity and the cloud combined with the internet totally transformed the impact of computing. At the risk of sounding like Robert Solow in the 1980s, I can see the effect of digitised transactions everywhere but in the productivity figures!
3. How to make the best of the API economy.
To make the best of the API economy, don’t talk about APIs! The deployment of new payment innovations by service users like retailers, hotels, government, insurance companies, utilities, etc. as well as adoption by the citizen/consumer will be driven by whether you can conceive, create and communicate what the real-world benefits to the end-consumer really are. The ‘hygiene factors’ such as security, low cost and in-channel user experience are givens. The real question is what are you doing to improve and extend ‘why’ a consumer/merchant relationship exists because that will be the only really marketable differentiator.
4. In your opinion, who is the biggest winner from PSD2?
Those who get with the programme early and understand their place in the value chain. To be a winner it will be essential to reject the totally pointless debate about who owns the customer! The banks currently ‘own’ the trusted position as keepers of the source of funds; the merchants ‘own’ the only really valuable product in the value chain; the consumer device manufacturers ‘own’ consumers’ preferences as to the interface they use to consume or engage with the merchants offering. The one bit that’s unclear is who will take the lead in the communications layer: PSPs, social media giants, fixed line, satellite or mobile network operators? The debate starts here!
