John Harvie, Director at Protiviti
Hiding behind the four characters PSD2 is perhaps one of the most exciting opportunities in a generation to reform the way that goods and services are bought and paid for. The second payment services directive has the potential to create a ripple effect that could change the entire financial services market.Following on from its predecessor (PSD1), this far sighted piece of European regulation creates a new set of rules, structures and technical standards that are designed to lower the frictional costs associated with trade in the European Economic area, reduce dependency on structures owned and controlled by those with vested interests in the status quo, and increase levels of competition.
Like any good piece of regulation, PSD2 is disruptive but at the same time opens up a world of opportunity to those that are willing and able to grasp it.PSD2 introduces a number of key reforms. First, it defines new types of regulated entity:
- Account Servicing Payment Services Providers (AS PSP) that provide and maintain payment accounts. (i.e. the role played by traditional banks today)
- Payment Initiation Service Providers (PISP) that initiate a payment from an account at the request of a customer.
- Account Information Service Providers (AISP) that consolidate information across one or more payment accounts, held at one or more AS PSP.
Under PSD2, with the permission of customers, firms will be able to directly and electronically instruct a bank to make a payment from a customer’s payment account to a third-party bank account.
Again, with permission, a firm will be able to extract data from a payment account to enable it to offer a range of value added services.
PSD2 extends the scope of its predecessor directive to payments in all currencies, and to payments where only one provider is located in the EU/European Economic Area (EEA).
The directive introduces a new technical standard for payment account access and customer authentication that will be implemented thought an application programme interface (API). PSD2 API’s must be made available free of charge to any API developer.All banks in the EU will therefore be required to have APIs available that conform to the PSD2 standards.
Although this all sounds quite dry, the implications are quite profound:
- The institutions and associated infrastructure, which for decades has controlled the way payments occur, no longer have a monopoly, card based schemes including VISA and Mastercard, for example.This creates the opportunity to generate more competition, increase levels of innovation and reduce the costs associated with payments.
- Secure but open access to payment accounts will be enabled by accepted and regulated standards. This opens up the potential for new types of financial services that use the data held within payment accounts to the benefit of the customer (consumer or business).These new services could involve:
- Account aggregation, which provides an overview of all accounts held by one customer across different institutions. All without using the clumsy, insecure and ineffective methods available today.
- Automated balances sweeping across multiple accounts to maximise interest payments and minimise debit balances.
- “Market place” banks that offer best-of-breed or lowest cost services for loans, overdrafts, foreign currency transfers, etc., transparently to the customer.
- Credit decisions can be based on actual data by any institution and not just the institution currently providing bank account services.This could have the effect of increasing choice and competition.
- Payment facilities for the “internet of things.”A fridge that has direct access to make payments on a customer’s behalf to replenish groceries, for example, or a car that can pay for fuel or a recharge without the customer leaving the vehicle.
- Automated best price advice can be provided based on actual spend data.For example, if a family is paying £100 per month for mobile phone use then the service can shop for a better deal for the customer and present the offer at an appropriate time.
- Improved services to business customers to help identify payments that are made in error, duplicate payments, etc.
There will be winners and losers as a consequence of PSD2. Potentially the biggest winners will be the consumers and SMEs making and receiving payments within the European Economic Area.The hope is that costs should come down as competition increases, more choice will be available and value will improve.New services can be created that serve the interests of the customers rather than the interests of the institutions with which they currently bank. In the context of Brexit, it seems unlikely that the UK Government will not wish to pursue PSD2 with equal vigour to European counterparts.
PSD2 has the potential to disrupt the earnings potential of banks that only act as ASPSPs. These banks will have to offer valuable data and processes to others without any guarantee of a commercial return.A bank that fails to respond to the opportunities of PSD2 could be disintermediated and relegated to a simple deposit holder with all the value added services stripped away along with the profits they bring. PSD2 is likely to force banks to innovate to take a position within the emerging API economy that PSD2 creates.
Card schemes and merchant acquirers will see new types of competition with potentially lower costs.This may drive down costs and introduce a much more innovative and dynamic payments landscape.
PSD2 isnot without its risks, however, and the risks are perceived differently from the multiple parties impacted by the directive.Going into these risks in detail lies beyond the scope of this paper but one of the most significant risks revolves around the opening up of customer accounts and the use of the associated data.The technical standards brought about by PSD2 seek to make this as secure as possible, however this has a down side as it requires stronger authentication at the point of sale, which potentially disrupts the customer experience and slows down or stops payment altogether.These issues are not new.This is the reason why historically petrol stations had limits of £50 per transaction.Before network technology was sufficiently advanced this was the sum that that was permissible without having to centrally authenticate the transaction and was done to ensure the customer did not experience frustration and inconvenience and the filling station did not lose business and suffer from long queues.The European Banking Agency’s decision to relax the technical standards for payments under €10 goes some way towards addressing this risk.However, the real challenge lies in the implementation of the technical standards and this is where the software engineers building the APIs need to think carefully about the customer experience as well as the security requirements.
Teed off: As COVID fuels S. Africa’s housing crisis, golf courses feel the heat
By Kim Harrisberg
JOHANNESBURG (Thomson Reuters Foundation) – It sounds like a developer’s dream: A greenfield site in the heart of Cape Town, close to the best schools, hospitals and transport links and big enough to build more than 1,400 affordable new homes. The only hitch – it’s a golf course.
The 46-hectare (114-acre) Rondebosch Golf Club is one of hundreds of golf courses in South Africa facing scrutiny by land rights campaigners as a surge in evictions during the COVID-19 pandemic exposes an acute shortage of low-cost housing.
Rondebosch had its lease renewed by the city government late last year despite the presentation of some 1,830 objections by local housing rights group Ndifuna Ukwazi, which says turning golf courses over for homes is a way to tackle deep inequality.
“Using this land for the benefit of a few wealthy individuals at the expense of those in dire need of affordable housing is inefficient, unequal and unjust,” said Michael Clark, head of research and advocacy at Ndifuna Ukwazi.
Warnings by city officials that eviction is on the cards for occupiers of abandoned buildings, just months after Rondebosch’s lease was extended, have roused activists and sparked calls for cities to prioritise land use according to need.
“Golf courses occupy expansive tracts of land in well-located areas across cities,” said Edward Molopi, a researcher with the Socio-Economic Rights Institute of South Africa (SERI), which uses litigation and advocacy to support human rights.
“South African cities face an acute need for affordable housing and this land can be used to address the problem,” Molopi told the Thomson Reuters Foundation, adding that he knows of hundreds of housing evictions since lockdown began.
Nearly three decades after the end of white minority rule, South Africa remains one of the most unequal countries in the world, according to the World Bank, with urban areas still starkly divided along racial and class lines.
In other countries too, from South Korea to the United States, the swathes of green space needed for a round of golf have stirred debate around alternative uses for the land, whether apartment blocks, public parks or even vineyards.
‘NOT THE ONLY LAND’
But in South Africa, where tracts of land, including golf courses, were used as physical barriers to separate different racial groups during the apartheid regime, campaigners say repurposing such areas is key to achieving a fairer society.
Golf lovers have a choice of about 450 courses in South Africa, according to independent golf course ranking platform Top 100 Golf Courses.
They are easy to spot on a Google Maps view of the nation’s cities, many in close proximity to other golf courses, and also poorer neighbourhoods or townships.
But officials say finding space for affordable homes is more complex than repurposing golf courses.
Not all of the courses are publicly owned or suitable for residential use, said officials from the cities of Cape Town, Johannesburg and Durban. The sport also draws tourists and creates jobs, they added.
“Densification, diversification and inclusionary housing requirements in well-located parts of our cities is a more realistic approach,” said Nthatisi Modingoane, a spokesman for the city of Johannesburg.
Johannesburg’s Observatory golf course lies less than five kilometres (three miles) from Hillbrow, an inner-city suburb notorious for derelict, overcrowded buildings and crime.
People unable to afford rent end up there in “dark buildings” – properties seized by rogue landlords that offer crowded but cheap rooms, often without electricity.
“Since COVID, people need cheap rent, but if you don’t pay the landlords you get kicked out or … they kill you,” said Ethel Musonza, a housing activist who used to live in a dark building.
“There is a big need for people to be resettled in a safe place they can afford,” she added.
But the Observatory course sits on the site of an old ash dump, making it a poor site for residential construction, said club captain Simon Leventhorp.
“There is need for affordable houses but golf courses aren’t the only land available,” he said, adding that the club had a lower membership fee that other courses, making it a more inclusive space.
Some courses – like Rondebosch in Cape Town – do fit the bill for affordable housing, said Clark.
Golfers at the course can still enjoy views of the city’s famous Table Mountain from the greens, but authorities did add a two-year cancellation clause to the club’s lease if an alternative use of the land is identified.
Land used for community and recreational use, including golf courses, is currently being reviewed for possible residential sites, the city added.
In the meantime, land campaigners will continue to put pressure on state and city governments to “proactively intervene in housing markets”, said Molopi from SERI.
“This will be central to dismantling the ‘apartheid city’ and moving towards urban spatial justice,” Molopi said.
(Reporting by Kim Harrisberg @KimHarrisberg; Editing by Helen Popper. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)
UK might need negative rates if recovery disappoints – BoE’s Vlieghe
By David Milliken and William Schomberg
LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.
Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.
Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.
Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.
“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.
“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.
Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.
Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.
Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.
Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.
Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”
“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.
By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”
Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.
“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.
($1 = 0.7146 pounds)
(Reporting by David Milliken; Editing by William Schomberg)
UK economy shows signs of stabilisation after new lockdown hit
By William Schomberg and David Milliken
LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.
The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.
A separate survey of households showed consumers at their most confident since the pandemic began.
Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.
The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.
Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.
Official data for January underscored the impact of the latest lockdown on retailers.
Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.
“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.
The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.
BORROWING SURGE SLOWED IN JANUARY
There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.
Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.
That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.
The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.
Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.
“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.
Some economists expect higher taxes sooner rather than later.
“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.
Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.
The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.
IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”
However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.
Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”
($1 = 0.7160 pounds)
(Editing by Angus MacSwan and Timothy Heritage)
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