PSD2 for dummies
What is PSD2?
With the revised, i.e. second Payment Services Directive (PSD2) adopted in October 2015, the EU wants to make payment transactions on the Internet more convenient, cheaper and safer.
The EU wants to promote competition in the payment system and standardize the payment products by standardizing the rules for banks and payment service providers. PSD2 helps to ensure transparency and fair competition and reduce the entry barriers for new payment services – all for the benefit of the customer.
The Directive requires that all Member States implement these rules as national law by 13 January 2018.
What is the expected impact?
PSD2 will crush the bank’s monopoly on their user data.
In the future, bank customers will be able to access their account information for other service providers. For example, third-party providers can directly trigger payment transactions with your permission, without having to go through the banks.
For the customers this is actually a really good news. They can expect a lot of new services, like a multiple bank account dashboard view. What does this mean? For consumers who hold more than one bank account, the changes would also allow businesses to display all their account information in one place for them. The access must be provided by the banks, for example through appropriate interfaces.
PSD2 is a game changer. It introduces new game rules and changes the whole value chain. When consumers can simply pay their bills via third parties, banks run the risk of losing direct contact with their customers. To prevent this, banks need to offer attractive solutions and services.
PSD2 is also a great opportunity for new businesses, who focus on providing users with their account data on in one place (Account Information Services).
Is PSD2 secure enough?
PSD2 will also require very strong identity checks when paying online. The specifics are still being debated and not final, but we could say that the authentication process could be in the responsibility of the banks with a strong 2-factor authentication process (password that you know plus something else that you have or are).
What does PSD2 mean for banks?
On one side let’s call it a free-market competition from Account Information Service Providers (AISP) and Payment Initiation Service Providers (PISP). This new directive takes shots at everything that they have held for granted in the last several decades over the reliance of their customer base and the banks’ unwillingness to innovate with the times. Consumers have long been demanding more from their banks and for the privilege of holding all of their money the banks have largely unanswered. Now they’re going to have to answer.
On the other side it’s also an opportunity. Basically the third parties could rely on secure customer authentication through the banks, i.e. banks would become identity holders. Here I see a huge potential for banks to stay in the game offering APIs for Payment Service Providers (PSP).
Time will tell or better: The customers will tell!
Source GIF animations: Janis Graubins on Medium