‘Slow progress so far’ after six months of PSD2

Today marks six months since the second payment services directive (PSD2) was introduced across Europe, promising to open up the traditional banking and payments space to the innovation of FinTech challengers.

But, as several industry experts admit, so far there has been little to show in terms of new products or consumer communication.

Andrea Dunlop, chief executive of acquiring and card solutions at Paysafe Group - one of the first third party providers to have its Payment Initiation Service Provider licence approved - said there were high expectations of payments landscape transformation.

“However, it is fair to say that some of wind has been taken out of our sails,” she commented. “There is still an unshakeable belief in the payments community that PSD2 will have the impact it is earmarked to eventually, but progress since the implementation date has been slower than expected.”

The costs of overhauling legacy technology to permit open application programming interface (API) integration is significant - and the result of this forced investment is a much lower level of control over the customer relationship - so it comes as little surprise that the appetite for embracing PSD2 hasn’t been particularly strong on the part of banks, explained Dunlop.

In fact, on the 13 January launch date, many High Street banks were not even ready to comply with the legislation at all, with no incentive for them to move beyond the minimum requirements.

Another fundamental hurdle for Open Banking is consumer and business appetite for adoption. Currently, consumers have limited visibility on what the changes mean for them, with familiarity only coming with concerted marketing campaigns and use of actual applications or products using API technology.

Gianluca Corradi, the head of the UK banking practice at consultancy firm Simon-Kucher, argued that while the results so far for customers are yet to be dramatic, internally there has been a lot happening.

“I am sure over the coming years its impact on customers will be profound and positive, the biggest improvement for bank customers since the introduction of the first cashpoint in 1967... and maybe it will prove even more profound.”

Simon-Kucher is working with several banks and FinTechs in the UK to help them devise and deploy new services enabled by the Open Banking initiative, with Corradi suggesting there will be a flurry of new innovations going live in the autumn.

“Open Banking is already leading to more competition overall and a faster pace of innovation at the established banks through them now facing a much greater FinTech threat, which is becoming ever stronger,” said Corradi. “As an example, HSBC recently launched Connected Money app, which allows you to see your accounts at up to 21 banks big banks in one place.”

Martin Koderisch, manager at payments consultancy Edgar Dunn & Company, pointed to two recent announcements which demonstrate a shift to push payments enabled by PSD2.

His first example is Mastercard launching Mastercard Send in the UK – a service for peer-to-peer payments and business-to-consumer disbursements that sends real-time payments using the UK’s Faster Payments network.

Koderisch noted that Mastercard acquired Vocalink - the operator of the technology that Faster Payments runs on - in May 2017, with Mastercard Send being the first service made possible by the integration. The service also sees Mastercard partnering with digital-only challenger Starling Bank, providing settlement services to manage funds to be disbursed before they are pushed to individual accounts via Faster Payments.

Secondly, Deutsche Bank recently announced a new payment service in partnership with the International Air Transport Association (IATA), whereby the bank will collect customer payments directly from consumers’ accounts. With direct push payments being processed in near-real time, IATA’s member airlines benefit from the acceleration of working capital and liquidity.

“So the shift to push payments has started and whilst the consumer experience may not alter significantly, real fundamental change is taking place below the surface,” stated Koderisch. “Push payments not only reduce costs, but in the broader FinTech context, support new innovative services that create real value.”

The next date in the diary for stakeholders in PSD2: 14 September 2019. That is the banks’ compliance deadline for the European Banking Authority’s Regulatory Technical Standards (RTS) on Strong Customer Authentication (SCA) and Secure Open Standards of Communication (SCS), a directive that clarifies how banks should be permitting access to customer data.

Dunlop said there are still question marks that need to be addressed regarding the exact obligations the RTS will place upon the banks. “The banks are working with FinTechs on what is in scope, but there are significant areas which may be out of scope for the Open Banking Implementation Entity.

“This has to be fixed if Open Banking really is to be successful. The question is, who will own this to ensure success,” she added.

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