In a series of articles, we are taking a closer look at the changes, shaping the face of the banking industry - one of the key areas the Nemesis platform offers a top-notch solution . In the focus today - PSD2.
The second Payment Service Directive brings many groundbreaking changes to the banking world. Here are the 8 most important things you need to know about PSD2 :
1. Meet PSD2
PSD2 is the second Payment Services Directive, designed by the countries of the European Union. It is paving the way to the future of banking, affecting everything from the way we pay online, to what information we see when making a payment.
Adapting to the new requirements comes along with a lot of investment on behalf of the industry - and while some traditional players aren’t happy, it is good news for consumers.
First brought in at a European level in 2015, January 2018 is the deadline for the EU member states to transpose PSD2 in their national legislative systems. That is why its provisions do matter now.
2. Key changes
The main objectives, PSD2 sets, are to:
- Contribute to a more integrated and efficient European payments market
- Improve the level playing field for payment service providers (including new players)
- Make payments safer and more secure
- Protect consumers
- Encourage lower prices for payments
The consumers’ perspective
Those of us who hold more than one bank account, will be able to see all their account information in one place. This accumulated information will be displayed by the Account Information Service Providers.
The banks’ perspective
PSD2 breaks down banks` monopoly on their users` data. It allows ‘merchants’, businesses, such as Amazon, to retrieve your account data from your bank, directly - once you grant your permission. That means when you buy something, Amazon can make a payment for you, without having to redirect you to another service (like PayPal, Payoneer or Visa).
3. New players entering
Traditionally, the financial services sector has consisted of established and well-known banks offering very similar services.
That is rapidly changing, as hundreds of fintech companies are challenging the status quo by offering a range of services that target the customer experience. They are making banking straight-forward, saving you time and stress while queueing.
Companies that previously weren’t associated with the financial services sector are playing a part. Take Viber, for example. Customers of participating in their program banks can now transfer money via instant message using Viber. WhatsApp , another messaging app, announced they are preparing to introduce payments as well, making it the latest service to let users transfer money to one another with a text.
4. The third-party payment providers
Under PSD2, if requested by the account holder, banks must give third-party payment providers access to their systems and client current accounts. Those third parties can then offer payment services to their customers.
A new requirement is set towards banks: Open your APIs (Application programming interface). Open APIs are needed by third party applications (such as new payment providers or social media applications) to connect to core banking systems quickly. This new approach guarantees fast time to market for innovative services that will set banks apart from competitors. Without an API policy, banks will lose out on opportunities to innovate and enhance their customer experience. A risk not worth taking.
5. Payment security
The PSD2 rules provide a high level of payment security. This is a key issue for many payment users when transferring money via the internet. All payment service providers, including banks, payment institutions or third party providers, will be asked to prove that they have certain security measures to ensure safe and secure payments. The payment service providers will be assessed on yearly basis.
6.The end of hidden fees
The more players enter the market, the more likely we are to see a reduction in banking charges. Up to now, banks could add transaction fees without any real competition to challenge them. With the market becoming more populated, banks will find their charges bypassed by customers using competitors’ services.
7. The competitors
In an open market, competition comes from a wide range of companies. Start with specialized fintech companies like TransferMate and Fire. Go to large global brands, such as IKEA, Aer Lingus and Ryanair that could also acquire a Payment Service Provider licenses and process payments directly from customer current accounts. Do not forget the social media apps that currently integrating payments in the spectrum of offered services. Last but not least - banks themselves, the traditional competitors in the field.
8. International payments
While the former PSD directive applies to intra-EU payments only, PSD2 extends a number of obligations to payments to and from third countries. The requirement is one of the payment service providers to be located in the European Union. The extension in scope means that the same rules will apply to payments that are made in a currency that is not denominated in Euro or another Member State's currency.
The directive's articles are looming on the horizon of each EU member state. It’s now up to banks and third party payment service providers to get on with implementation, guided by national authorities, industry groups and technology experts. Are you ready for the challenge? Have you started accelerating your compliance with the PSD2?