The view from Copenhagen
There’s no doubt that PSD2 has become something of a buzzword in the last year, dominating conversations in banking and fintech across Europe.
As banks prepare for the activation of PSD2 in January 2018, there’s no doubt that the legislation will be the key talking point at this year’s Money 20/20 Europe event in Copenhagen.
So, let’s take a moment to review what PSD2 actually is, how it’s shaking up fintech and what industry players need to know to get ahead.
What is PSD2?
PSD2 is the second iteration of the Payment Services Directive. It is a revision of the 2007 legislation drafted by the European Commission to promote the development of the Single Euro Payments Area (SEPA), instate industry standards and terms and conditions, promote transparency and increase competition in financial services across Europe.
The new directive aims to improve innovation, strengthen consumer protection, and improve the security of e-commerce transitions and account access within the EU and EEA.
This is undoubtedly good news for consumers and business banking users, but a daunting task for many banks.
Banks have some serious work to do to achieve compliance with the new regulations and the January 2018 enactment date is no doubt raising concerns. The impending deadline is also catching the attention of fintech providers keen to capitalize on the opportunities the new directive presents.
The challenges of PSD2
PSD2 presents a number of challenges to banks:
Security and authentication
The revised directive mandates far more advanced levels of security for both online and in-app purchases to ensure data protection and privacy.
To achieve this, the challenge for banks will be to install a number of new strong authentication points at various stages of the transaction chain, and to secure consumer data on mobile devices with hardware or software solutions.
Developing new APIs
Article 66, more commonly referred to as ‘Access to accounts’, is a key point in the directive. Essentially, it mandates that customer-permitted Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs) must be granted access to bank accounts and financial data through open application programme interfaces (APIs).
This is great for consumers, enabling merchants and other permitted parties to make payments for consumers without redirecting back to a third party. But for banks, the pressure is on to put these APIs in place, all to ensure the reliability of the third-parties requesting access.
Changing business models
With banks being asked to give up their valuable data, new entrants to the payments space are relishing the opportunity to deliver financial services in new and innovative ways. Consequently, banks are now not only competing with other banks, but also any companies licensed to provide these services.
In this increasingly competitive market, banks need to ensure they not only achieve compliance, but continue to innovate to generate new revenue streams and remain relevant. Delivering competitive, value-added services can ensure banks keep up with new fintech companies entering the game.
There is no doubt that PSD2 marks a profound shift for Europe’s payments ecosystem.
Understanding the key changes to the directive and the challenges they present will be crucial for players to get ahead.
With over twenty years’ experience in the payments ecosystem, FIME has unrivalled expertise to help make sense of the new regulations and how they will impact the landscape.
Meet us at Money 20/20 Europe to learn how FIME can help navigate a path to compliance and equip you with the knowledge needed to best prepare for PSD2.