The upcoming introduction of the revised Payment Services Directive (PSD2) is expected to transform the European payment industry. It has already created a turbulence, because the effects for all industry players are somewhat controversial.
PSD2 is designed to improve consumer protection and competition, and drive innovation. The legislation is aimed at offering a wider scope to cover new payment services and features, and mandates banks to open their infrastructures, provide customer account access to third-party payment providers, transparency of payment charges and strong customer authentication for all electronic transactions.
Shaking up payments industry
A misunderstanding occurred between German regulator Bundeskartellamt (The Federal Cartel Office, state national competition regulator) and country’s banking industry.
German banks were indicated to violate German and European competition law by placing restrictions on non-bank payment services.
The Bundeskartellamt stated that country’s banks are enforcing ‘special condition for online banking’ meaning that customers cannot use their personal security credentials in non-bank payment systems. This measure was found to be significantly hindering the use of non-bank online payment systems which are often lower-priced.
The banks argued that their rules were introduced to secure their customers’ online payments, and that it is by no means an attempt to put up barriers for competing payment services.
It might seem as a fair argument, as consumers are providing their banking security credentials to initiate payments, and banks here are only trying to protect their customers against fraudsters.
We all know that it doesn't take much to steal private information through phishing sites.
The authority, however, has dismissed this statement saying that these rules cannot be considered as a necessary part of a consistent security concept of the banks and they impede non-bank competitors.
Playing it blindfolded
Despite years of negotiations the PSD2 legislation still appears rather confusing and the January 2018 deadline for its implementation is stifling market progress. Market participants cannot plan innovative products and services, and take on concrete steps to establish partnerships, because they are uncertain of what is going to be allowed and on what conditions.
Banks are only starting to understand the potential benefits of the implemented directive deciding on what approach to follow. Some are ready to embrace this opportunity for collaboration and innovation by willingly opening up their infrastructure, while others take on self-defense tactics.
Costs may be passed on to consumers
It is often argued that there's no commercial incentives for banks around PSD2. In addition to making huge investments to open up their systems, banks will have to make a large amount of operational changes around pricing transparency, authentication and liability. While being forced to rebuild their systems, they would not be able to make investments to boost innovation.
Sad news - they wouldn't even be able to recoup the costs, as PSD2 prohibits banks from charging third parties for access granted to them. So, third parties will be enjoying all the benefits at no costs. There's a possibility that these costs might be eventually passed to consumers.
Regulators inspired by sound clauses of PSD2 is taking steps towards moving to a more open and accessible payments landscape.
However, the initiatives might result in exactly the opposite - creating a fragmented and complicated industry. Implementing a regulatory and legislative change can be a challenging process, but it tends to be easier the sooner participants engage to this process. While the framework offered by PSD2 still appears to be benign, banks and authorities have to take the chance to influence the way ahead.