PSD2 will open the banks’ doors to competitors and third parties. This will make it possible for Payment Service Providers to bypass existing proprietary digital channels to access customer payment data on accounts and payment services on behalf of the customers.
One of the corner stones in PSD2 is the implementation of external interfaces (likely to be Open APIs in most cases). These allow other approved and regulated entities to access a bank’s systems through machine-to-machine communication. For instance, it would be possible for a PSP to have an app or program that accesses accounts in several banks and presents it to the customer in one consolidated overview. Customers can initiate payments and make transfers between the accounts.
As well as creating a framework to allow new competitors to enter the market with the stated goal of increasing efficiency and cost-reduction, PSD2 also creates a single set of rules and a legal foundation for payments and payment services across the EU. This aims to make cross-border payments as easy and secure as payments within a single EU country.
PSD2 is part of the powerful change agents in the payment market
PSD2 is one of the main drivers of the ongoing developments and change in the payment market. Together with technology evolution, innovation, new entrants and demand for real-time experience, PSD2 is contributing to changes both in services and infrastructure. Here are some developments that are likely as a result of PSD2.
Services: Digital financial services, including payment initiation, will reduce the use of cash as a result of more user-friendly, safe and context integrated services. These will be used increasingly on alternate digital devices such as mobile phones and integrated chips. PSD2 will contribute to developments where e-commerce is a daily channel used for purchases, from one-off orders to recurring automated deliveries of, for example, domestic goods such as food. Corporates will use digital financial services almost exclusively where order-to-cash and purchase-to-pay logistics (both physical and financial) are automated and integrated. Interaction, confirmations and payment execution end-to-end will happen instantly, when required.
Infrastructure: Parallel to current infrastructure services, clearing and settlement services will be provided in real-time, 24/7. The European Central Bank is renewing the Target2 system to better meet these future requirements. ISO 20022 standards will be used more widely than today, while it is also possible that some of solutions will be based on distributed ledger technologies, which are currently in their infancy.
What does PSD2 mean for the banks
Under PSD2, Banks need to comply with the new updated requirements regarding payment terms, information transparency and payment executions. These are the more modest requests of PSD2, especially when compared to the requirement to open up access to customer bank accounts to a licensed third party payment service provider, which has been selected and mandated by the customer. To facilitate this change, banks are required to build a secure access interface and communication solution that complies with the still emerging Regulatory Technical Standards, currently under development by the European Banking Authority (EBA), to take effect in Q4 2018.
The competitive payment landscape will change significantly after PSD2 is fully implemented. For Nordea, for instance, it opens opportunities to develop and offer new multi-banking based digital financial services for consumers, merchants/retailers and corporates. We will respond to our customers’ fundamental needs and work with them in developing new solutions.
What does PSD2 mean for customers and corporates
The ongoing and increasing innovation boom will bring customers more user-friendly services. Digital integration will improve not only the payment experience, but also the underlying initial service. Automation-led efficiency and competition will also keep the service pricing reasonable. The focus of PSD2 is consumer protection and legislative harmonisation and so the main benefits to corporates will be simpler management of cross-border accounts and transactions. New offerings may also provide deeper integration of ERP functions to financial services, including multi-banking. PSD2 will shape service offerings to all customer types – SMEs, ERPs, large corporates, and merchants – but especially those operating in the e-commerce area for payment collection.
Transposition of the directive
By 13 January 2018, the revised Payment Services Directive (PSD2) needs to be implemented to national legislations in the European Union.
PSD2 legislation will be in place in most of the Nordea countries in January 2018. However, some countries are facing a delay and the implementation will take place later.
It is up to the individual country to devise their own laws and, despite the aim of the full harmonisation, we see differences between the countries.
The requirements for secure communication for third party access as well as strong customer authentication are subject to a separate timeline and not expected to apply until Q3 2019.
Read more: European Commission > Law > PSD2 >>