The Second Payment Services Directive (PSD2) comes into force across Europe on 13 January and, unlike most money-related regulation introduced in the EU, PSD2 seeks to open up banking and generate new ways to pay.
For the telemedia industry PSD2 means that mobile can be used to charge for all sorts of new things – digital and quasi-digital goods and services, in particular, and opens things up to using mobile and SMS to do all sorts of things such as buy tickets for events and travel as well as pay for parking and other ‘time’ related.
So what impact is it going to have across the mobile payments eco-system?
European banks must open their data and infrastructure to fulfil regulatory requirements. Even though the professed focus of PSD2 is on payments and access to accounts, its ramifications extend far beyond that limited area.
Banks could pursue an ecosystem, or platform approach by adding third-party capabilities to their core business offerings via APIs, thereby creating innovative business models and sources of revenue. Banks could collaborate with other infrastructure providers, corporates and FinTechs to dramatically improve their cost and time to market for innovations.
While the initial focus for PSD2 at most banks has been on retail banking, strong competitors are already implementing open APIs in transaction banking and investor services to offer superior customer experience, insight and value to corporate customers as well as retail customers; while extracting bank wide efficiencies as a result.
PSD2 will increase competition in the payments sector by promoting open access to payment systems and accounts.
Although the introduction of PSD2 may be considered a threat to the traditional business model of payment processing companies, there are opportunities here to provide integration services into third-party networks and apps, as well as the point-of-sale systems of merchants.
The business models for credit card companies and cards divisions of banks may be affected by PSD2 as retailers and other industries switch to using open APIs rather than cards processing. Visa and Mastercard have announced innovation initiatives that indicate a focus on new services and revenue streams.
Rest of the payments ecosystem
PSD2 will create new PSPs but also new competitors given the “Third Party Access” requirements. The Open Banking provisions in PSD allow non-banks, corporates (like Amazon) or FinTech businesses to directly access consumer bank accounts to perform payments activities and/or gain access to customer data . One UK retail bank has said this could mean £20m per annum of revenue lost if the 10 biggest retailers become authorised as PSPs.
From an end user perspective, customers are embracing new technology; the volume of online and mobile payments has increased significantly, and customers will be able to enjoy instantaneous payments via mobile wallets on many p2p accounts and towards operators with advanced features.
Consumer protection will be boosted through greater transparency of costs and protection from charges, including reduced liability for customers from fraudulent payments.