PSD2, the much vaunted reimagination of the original EU Payments Services Directive, is to be implemented by member states in 2018. The aim of PSD2 is to revolutionise the payments industry, influencing everything from the way we pay online, to what information we see when making a payment.

The Big Changes

The headline change PSD2 is set to deliver is the dissolution of the major banks’ monopoly of their users’ data. Only with explicit permission, approved third parties, often referred to in industry literature as ‘merchants’, will be granted the ability to retrieve a person’s account data from their bank. It will mean that when an individual purchases something, this third party can make the payment directly, without having to redirect the customer to another service (eg PayPal or Visa).

For consumers and businesses who hold multiple bank accounts, the changes will also allow providers, known in the legislation as Account Information Service Providers (AISPs), to display all account information in one place, allowing for unprecedented real-time visibility of multi-banked cash positions and finances.

PSD2 will also require more robust identity checks when paying online. Like various elements of the directive, specifics are still being defined, but checks will undoubtedly become more rigorous and necessitate more permissions from the purchaser, particularly for high value transactions.

But is it enough?

With the changes that are coming, including some pretty major ones, a question that no-one has really thought to ask (or maybe even dare to ask!) is; has PSD2 gone far enough? In order to answer this question, as well as seek to explain why it even needs to be asked, there are certain themes within PSD2 that need a little scrutiny.

Getting technical

One of the key ways that PSD2 will open up the market, is by implementing a standardisation of how the banks share data with approved third parties. This is a big and necessary step that has rightly been applauded. That is, until we scratch at the surface and realise that no technical standards for the sharing of this data have been delineated at all. And we may not see any until as late as 2019.

The likely reasoning for the delay in technical standards is that changes to technical architecture to facilitate standardisation, is a lengthy process. Therefore, technical standards cannot be released for another couple of years. However, such a view is short sighted when countered with the reality that the banks have to provide the data in some form in January 2018, and we will therefore see a proliferation of different standards and data formats.  Navigating this will be impractical for customers, delaying the benefit of PSD2, and leading to an unnecessary burden on the banks to re-architect solutions when the technical standards finally are released.  It was October 2015, that the European Parliament adopted the European Commission proposal to create safer and more innovative European payments, i.e. PSD2. Obviously, the proposal had been floating around for some time before that, so there has been ample time for all interested parties to act on technical standards.  Without this guidance on standards, consumers will, as will those banks wanting to take advantage of the new regulation themselves, as they will have to manage a range of data formats as wide as their nostro network. 

Exclusion of the corporations

With even the most cursory of glances at the finer points of PSD2, it is clear that this is a directive with the consumer and retail in mind. Removing the spotlight from the corporate sector is perhaps understandable. Since the 2008 global financial crash, big business has come under renewed scrutiny. Scandals involving tax avoidance and evasion, exorbitant CEO salaries whilst shop-floor workers barely survive on zero-hour contracts, environmental negligence, and an array of other unscrupulous business practices have soured public opinion.

PSD2 appears to be an attempt to redress the balance by making the paying public the almost sole focus of attention, but how wise a move is this? After all, the corporate sector in most EU member states is an enormous contributor to tax revenues. Any enhancement of payment processes for the sector will likely aid quicker and more secure transfers of capital, boosting business opportunity and growth, and thus swelling treasury coffers across the continent. The lack of focus on the corporate sector from the directive appears a risky move.

Lack of a roadmap

“Roads!” bellowed Doc Brown in the final scene of Back to the Future, “Where we’re going, we don’t need roads!” Unfortunately, this sentiment also seems to be shared by those whose job it is to assemble the European Payments Directives.

The original Payments Services Directive (PSD1) was a ground-breaking piece of legislation, but was always going to need updating at some point, in line with technological advancements and consumer demands. After the enactment of PSD1, the regulator and EU Commission should really have built a roadmap with a clear vision of how payments processes needed to evolve and improve going forward.

For all the changes PSD2 brings, many of which are welcome (if not a little overdue) it still has that feel of ‘sticky plasters’ being applied to an original. One can only assume that in time work will begin on PSD3, PSD4, PSD5, each one unleashed on a public with the same frequency, and, quite possibly, to the same sense of anti-climax as the latest smartphone or games console.

A roadmap, with defined checkpoints, goals, and target groups for each stage would surely clarify thinking and pave the way for a proactive approach to payments, rather than the current, largely reactive approach.

Coming to the rescue

OK, ‘to the rescue’ might be a bit grandiose, but FinTech companies have been quietly working away whilst PSD2 has been under construction, ready to deliver on the directive’s objectives whether they are delivered or not.

We are at a point now where real-time banking information, bank agnostic solutions, and the development of richer data sets will all be set for enterprise organisations and multinational corporates to utilise and enjoy. The opportunities are out there, but customer value and experience could be so much enhanced with technical standards and a long range roadmap. 

As ever, as the industry is getting itself ready; FinTech players are once again leading the way.