In 2007, the PSD Payment Directive was adopted, which created a single digital payment market in Europe (credit, debit, and payment cards). This gave birth to many FinTech companies providing online payment services. However, there were no regulations to control their activity.
Thus, in 2016, an improved version of the Directive, PSD2, came into effect and obligated the EU states to bring the national legislation into line with the new norms by Jan 13, 2018.
Is this Directive laden with uncertainties and threats, or filled with pleasant benefits? Let’s find out!
PSD2 allows physical and legal entities to use third-party providers to manage their money. That is, theoretically in this year, it must be possible to pay our bills, take a loan, or make any other transactions through Google, Facebook, or some brand-new application created by a FinTech company.
In fact, the main point of the new payments regulation is to make banks open their API to service providers. The point is that if you, for example, want to take a credit in Bank A, yet the interest is too high for you, there would be other options available. With PSD2 all you would need to do is open an app, choose an attractive bank offering and permit the bank to submit your sensitive information and make transactions. This will allow third parties to create financial services over the data and products of banks.
New licenses. There will be two: PISP (payment initiation service provider) and AISP (account information service providers). PISP is created for the services that provide access to API to deliver payments. AISP is for services that will request information about the client’s account from the bank and collect it in one place.
Increased safety. A reliable customer identification system will be implemented. Moreover, to avoid fraud, any payment will be limited up to €50 in case of unauthorized payments.
No intermediaries. Everything depends on you. For any payment, a merchant has to first ask for your permission to use your bank details.
The territory of regulation. The regulation is valid not only for EU countries. The transactions where one side of the deal is in Europe and another is not fall within the scope of PSD2.
What every party will get. A citizen will not feel the effect of the directive so much as other parties will. Simple users will only benefit, as they’ll be enabled to get financial services in a more familiar way – through sites, social media, and mobile applications.
Providers and new FinTech companies will attract investors' attention and gain access to client data for analysis and development of new services. However, they’ll have to pay for the API they get from banks.
Considering banks, the situation seems to be rather contradictory. In general, they have to adapt to fast-changing conditions in this world to survive. Thus, let’s look closer at the situation.
On the surface, banks are at a disadvantage. With PSD2, they seem no more than just storage for your money. However, such is not the case. The benefits for banks are:
1. Due to digitalization of the financial sector, banks will have to adapt by resolving their old problems with the help of a new digital approach. The main thing here is to find the appropriate team of developers.
2. Bank clients’ satisfaction rate will dramatically increase because of the new channels through which they now get particular services.
3. A broader analysis of the innovation market.
4. New sources of profit for the bank. Banks will be able to charge fees for their API being rendered to service providers.
5. Reduction in expenses for IT development within the bank through the partnership with third-party providers as well as the team of developers having specific knowledge needed for your business digitalization.
The regulation doesn’t mean that everything will be entirely different right away. It is expected that the directive will fully function in 2019, when the technical standards that lie at its base and the new information security rules will come start to be enforced.
“Of course many banks might see PSD2 as a threat to their traditional business. However in the age of digital transformation any change should be seen as an opportunity and banks themself need to redefine them as Fintechs.” Michael Krusche, K&C CEO comments.
The only reasonable solution is to not let the moment slip away. Others will be scratching their heads in hesitation, asking themselves "How come? What are we gonna do?" We suggest that you seize fortune by the forelock and offer something truly unique to the market. And the K&C team will make sure that every detail of your project functions correctly!