PSD2: Exploring Fintech’s Final Frontier
When is it happening?
The Second Payment Services Directive (PSD2) came into force in January 2016 with a regulation that it be implemented from January 13th 2018. The approaching deadline for implementation and the launch of the Single Euro Payments Area’s (SEPA) Instant Credit Transfer Scheme (SCT Inst) this month are both a sign of the changing times and a driver of that change for EU financial services. These combined measures are designed to boost competition and drive innovation in consumer banking and will fundamentally transform banking, FinTech and the payments landscape.
What is PSD2, how does it work and why is it important?
The new legislation is designed to improve customer choice through ”Open Banking” and break the hold banks have over customer data and account information. Data is the “bread and butter” for FInTech firms allowing them to devise innovative financial services and solutions and enable customers to choose from a wide range of third party providers. Currently, FinTech companies have no direct access to customer data or account information and have to acquire this data via a range of lengthy processes from multiple providers. The new directive states that banks need to allow third party providers of financial services, such as innovative FinTech start-ups, access to customer data and accounts through Open Application Programme Interfaces (APIs), once the customer has provided consent. PSD2 dictates that the customer is in charge of their personal financial data; who can see, use and apply it. Customers can choose to sign up for these third party financial services providers in a safe, secure and importantly, regulated way, and share their information across platforms and providers.
Opening a world of opportunity for consumers. How will PSD2 affect international money transfer services?
A key aim of PSD2 is creating a level playing field for payment service providers throughout Europe, while making those payments faster, more secure and cheaper. FinTech companies will no longer need to duplicate the processes needed to acquire valuable customer data or to take costly steps from multiple providers to find the data they need. New entrants in an already competitive market will enable customers to choose from a wide range of Payment Initiation Service Providers (PISPs). PSD2’s focus on enhanced transparency is designed to improve consumer rights in banking, maximise customer choice and encourage greater competition. Any business or consumer who needs to make regular international payments will no longer have to pay substantial fees and the increased competition will likely to lead to better choice, lower costs and easier switching of services should an alternative provider become more attractive. For global businesses, a range of new international payment products and services will be available without having to move banks and undergo the lengthy process of changing accounts. The international money transfer industry lends itself to taking advantage of the benefits that PSD2 has been devised to confer. Banks have been maligned for “hidden fees”, poor exchange rates and uncompetitive pricing and while customers are becoming well-informed regarding their choices for online money transfer and payments, the innovation ecosystem created by PSD2 will have far-reaching consequences for consumers and businesses alike.
Look to the future
Consumers may be coming more comfortable paying online and using mobile devices for payments, money transfer and commerce generally but for PSD2 to succeed, customer buy-in is crucial. Customers need to allow access to their sensitive and crucial financial information. Enhanced security may be a key pillar of the Directive but it will be consumers and business customers deciding whether they are confident in allowing access to their data and this confidence will be crucial for the success and spirit of PSD2 to succeed. Security and security technology needs to be watertight and customers and business will have to believe it is to sign on the dotted line.
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