Nothing stays the same. It appears that within Financial Services, particularly Banking and specifically Payments, there is a perpetual series of reviews, recommendations, regulation and legislation aimed at improving customer choice and fairness. This will create increased competition, a desire to stimulate innovation, and a need to ensure security and protections are at the forefront of these improvements.
After all, Transformation is the new normal.
Hence PSD2, or the “Revised Directive on Payment Services (PSD2)”, applicable from January 2018, introduced by the European Commission. This updates and means to compliment the original legislation introduced by the Payment Services Directive (2007/64/EC).
What does it offer?
Primarily PSD2’s objectives towards Payments are to:
- Enhance payment security and safety
- Continue to protect customers and consumers
- Contribute to a more efficient and integrated European (payments) market
- Encourage new players through the removal of entry barriers
- Advocate lower pricing of payments
It comes at a time of exaggerated change within the Banking industry. Challenges abound with the perceived heightened threats from FinTech and Challenger Banks, encouraged by these proposals and an organic, customer-centric drive to develop more innovative products and services leveraging the pace of technological advances.
Distributed Ledger, APIs, cloud and other forms of technology introduction are enabling exponential growth, and opportunities, in propositional development and technology delivery.
Consumer behaviour, “What I want to do. Where, when and how I want it and with whom” has changed expectations of their Bank significantly. Ubiquity has never been more pronounced.
Uncertainty still from the “Brexit” outcome in the UK and a push towards “Open Banking” with the UK’s CMA (Competition and Markets Authority) Retail Banking investigation and remedies and the Instant Payments expectancy all act as catalysts for expansion by new entrants again leading to improved experiences and benefits for consumers, Banks and the new entrants.
So what are the opportunities? Interoperability, co-opetition and openness
PSD2, as a legislative framework, introduces new roles into the Payments ecosystem. The introduction of Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs) thereby removing the barriers to entry will encourage co-opetition, collaborations, amongst incumbent and new players.
This ability to connect, through choice, should facilitate invention. Banks will reconsider, even create new value propositions through the provision of data and accessibility to forge new products and services. The consumer wins. The entities involved partner effectively and could use API-based services to fulfil new product developments and offer an enhanced, frictionless, secure, user experience. This also puts those organisations onto a positive Open Banking trajectory.
Where might one go from here?
As mentioned, the directive becomes applicable in January 2018.
With consultation and the Regulatory Technical Standards (RTS) ongoing regarding the new “strong customer authentication and secure communication under PSD2”, there remain open-ended questions and the clock continues to quickly run down.
And there persists the challenge to deliver with the existing, often competing, demands from commercial and ongoing regulatory projects or programmes.
Those who are likely to benefit most will look at the chance to act as “first movers”. They will see the options to devise a strategy and clear messaging of intent and mobilise collaborative effort.
PSD2 in itself will be “disruptive” in a hugely positive way.
It will take effort, and engagement, from all organisations who want to play their roles in the European Payments ecosystem. It will naturally pose challenges to Banks – their operating models, pricing, tooling across Technology and platforms both for consumers and internal users, Procurement functions and partnerships and the obvious Compliance aspects within a condensed timeframe.
However, it can advance innovation and harness collaboration with an amenable approach to the expansion of APIs, accessibility to data and its usage, biometrics and other security features.
It will require responsiveness, competence, trust, speed and flexibility to administer and effect change.
Overall, the pros of PSD2 outweigh the cons of participating in one of the world’s largest economic areas.
About the Author
Grant Osborn is an experienced Project Manager at Mansion House Consulting. He is a leader of projects and programmes with over 30 years in Financial Services, mainly Global Transaction Banking. He has a Business/IT focus and led the development of new sustainable and commercially viable products, solutions and services. Grant has led various transformational, regulatory and mandatory programmes in Global Payments & Cash Management and been a member of leadership teams forming strategy and commercial goals, and leading its execution. These experiences have required him to lead people and teams effectively and demonstrate successful project delivery, governance and controls.
About Mansion House Consulting
MHC is an international business and technology consultancy, focused exclusively on the financial services sector. We provide high quality, practical and robust solutions for the industry through our team of highly experienced consultants and subject matter experts.
We specialise in change and transformation management, toolkits, regulatory and governance frameworks. We deliver solutions globally to the transaction and investment banking communities, including leading Tier One clients from the financial services industry.
Established in 2009 we have been expanding and evolving ever since, with a team in excess of 300 and listed in the Sunday Times Tech Track 100 on four consecutive years 2013-2016, the London Stock Exchange’s 1000 Companies to Inspire Britain 2015 as well as the Investec Mid-Market 100 list in 2016. Headquartered in London, we have a global presence through offices in Frankfurt, Singapore, New York, Jacksonville (Florida) and Bangalore (India).
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