European Union PSD2 Directive - what will change
With the adoption of the revised PSD2 directive, the European Parliament authorized a revolution in the European payment industry. In accordance with the new regulations, the playing field is finally a new level for startups in the FinTech space in order to play a more important role.
Often we hear the same question: what really changes?
Below you will find a summary of the five main topics that introduce the new rules:
• Expanding the scope beyond Europe and defining a “Payment Institution”.
• Account Information Service Providers (AISP)
• Payment Initiation Service Providers (PISP)
• Prohibition of additional payment cards
• Security of online payments and account access
Extending the scope outside of Europe and defining a “Payment Institution”.
The new European Union PSD2 directive expands the coverage of the original PSD, including what is called “one leg out” transactions: transactions in which at least one (and not more) party is within the EU.
The EU PSD2 Directive also expands the definition of a “Payment Institution” to new types and categories of players.
Access to a third party account
The main volume of the European Union's PSD2 directive is to encourage new players to enter the payment market, instructing banks to “open a bank account” to external parties.
These Third Party Players (TPP) are divided into two types:
1. Account Information Service Providers (AISP)
2. Payment Initiation Service Providers (PISP)
AISPs are providers that can connect to bank accounts and receive information from them. A typical example of this is the investment recommendation service: the service will be able to see how much money a user saves each month for his income and provides individual recommendations based on his spending patterns.
PISP are players who can initiate payment transactions. This is a radical change in this industry, as there are currently not many payment options that can take money from your account and send it elsewhere. Currently, there are only credit transfers and debit cards that are offered only to the account holder’s own bank. In the future, we will probably see several different payment methods that can transfer money from an account without using a wallet (for example, Paypal).
Ban on extra charge cards
The original directive left this rule in each country to decide on the extra payment of card payments, creating a dispersed European landscape in which some countries have banned this practice, and some others have allowed it. The EU PSD2 directive seeks to standardize various approaches to card surcharges on card-based transactions that will not be allowed for those consumer cards that are affected by the charge for the exchange of payments.
Security of online payments and account access
Providing new players with access to customer bank accounts is a risky business. Therefore, the regulator introduced new security requirements for electronic payments and account access, as well as new security issues related to AISP and PISP.
So, what changes are we expecting and who benefits the most with this new regulation?
Banks must adapt. Currently, bank accounts are shaded and, with some exceptions, banks do not provide access to information stored in customer accounts. In accordance with the new decree, they are asked to “open”, but the burden of developing technical solutions lies with the banks themselves, creating an API that everyone is talking about.
PISP can win the most. They have a chance to eat the notorious “free lunch” by taking it from the banks (if the banks do not do anything, obviously) and leave with a piece of cake.
Users, as often happens when competition is encouraged, will get the most. New services will arise in the form of payment methods, intelligence on how best to use everyone’s savings, and re-use of identification capabilities. The most typical example of payment methods that may become popular is the connection to social networks.
Services that allow you to send payments directly from messaging applications are already popular in the US, where Venmo is standing in front of the package and it is pleasing investors with strong double-digit growth.
There is currently no such example in Europe, but by opening a bank account, players can combine the benefits of instant payment with the speed of online messaging. After a couple of years, we will be able to ask our colleague to share the lunch bill and get notified on facebook that the funds are ready for use and are safe on the bank account. The main difference will be that wallets are no longer needed (for example, Paypal, PingIt), but we will simply ask Whatsapp to connect to the bank account and use our fingerprint to accept the request for payment from a colleague next door. No need to open 3 different applications, mess around with IBAN codes for 20+ digits and double check if payment is received.
If you have any questions related to the EU PSD2 directive, you have the opportunity to find out the answers to them by contacting our professional experts!