The payments market has undergone dramatic changes over the past number of years as a wave of new regulations, innovative technologies and disruptive business models have transformed the industry.
Against this backdrop today’s banks and payment providers have the opportunity to become central to customers everyday transactions in the same way that social media and online retailing have become central to customers’ purchasing decisions. This is a concept which Accenture has previously explored in a vision for the ‘Everyday Bank’ and related ‘Everyday Payments’ – how digital is revolutionizing banking and the customer ecosystem.
Recent industry developments and new European regulations, most notably the revised Payment Service Directive (PSD2) are now shaping a new phase to this concept of Everyday Payments and Everyday Payment providers. The PSD2 in particular is set to accelerate innovation in the payments industry and to open the market to new forms of regulated Payment Institutions and payment-related services.
Overview of the Revised Payment Services Directive (PSD2)
The original Payment Services Directive (PSD) was first adopted by the European Union (EU) in 2007. The directive provided a legal framework for payments made in Europe, with the aim of increasing the speed, efficiency and ease-of-use of European payment services.
A revised Payment Services Directive (PSD2) has been proposed as a means to respond to changes in the payments landscape occurring since enactment of the original PSD and is due to be adopted at EU level within 2015.
In essence the PSD2 is a data and technology-driven directive which aims to drive increased competition, innovation and transparency across the European payments market, whilst enhancing the security of online payments and account access.
PSD2 will bring about key changes to the Everyday Payments environment, including:
- Extension of scope: The PSD2 will regulate ‘one leg out’ transactions beyond Europe and also extends the definition of a “Payment Institution”
- Third-party payment initiation: PSD2 will encourage competition in European payments by regulating payment initiation service providers (PISPs). These services operate using a ‘push’ payments process unlike the traditional card-based ‘pull’ payments flow.
- Third-party account access: PSD2 will also regulate account information service providers (AISPs). These services act as aggregators of customer payment account information.
- Prohibition of card surcharges: PSD2 seeks to standardize the different approaches to surcharges on card-based transactions which are currently applied across EU.
- Security of online payments and account access: PSD2 will introduce new security requirements for electronic payments and account access along with new security challenges relating to AISPs and PISPs.
Impact on Financial Institutions
At a minimum Financial Institutions will have to take action to ensure compliance with PSD2 under the main change categories of (i) Access, (ii) Interoperability and (iii) Security. However, these regulatory changes will also impact payments revenue, introduce new competition to the market and will prompt new business models and commercial relationships.
To retain market share and gain competitive advantage in this increasingly dynamic industry Financial Institutions should not treat PSD2 and other emerging European regulations simply as a compliance exercise but should embrace these changes as a catalyst for accelerating their own digital payments programs.
To find out more on how these new regulatory and market forces will impact the payments ecosystem, along with how financial institutions can establish themselves as Everyday Payments providers in this new regulatory environment, download our full report.