EU Payment Services Directive 2: counting the costs and benefits
EU lawmakers reached a political consensus last week on a proposal for a new EU Payment Services Directive (PSD2). This follows several months of negotiations between European Parliament, the Commission and the Council of Ministers and marks a significant step in regulatory development within the payments market, writes John Fernandez.
Since the adoption of the first PSD in 2007, the EU retail payments market has grown significantly and several new players have emerged offering innovative solutions to consumers in the form of payment initiation services and account information services (so called Third Party Payment Service Providers or TPPs). PSD2 formally brings these businesses into the scope of regulation, therefore providing for greater consumer protection and security whilst offering a framework that supports innovation, promotes competition and widens choice for consumers. In particular, TPPs can expect to benefit from a legal framework that supports access to accounts and prohibits banks from blocking such access other than for “objectively justifiable reasons”.
“These changes are welcomed and will ensure that emerging payment technologies are afforded sufficient legal footing within the EU to challenge legacy solutions and foster innovation”, says John Fernandez, legal counsel, PPRO Group.
PSD2 will also introduce a raft of new rules, some of which may prove challenging. These include liability allocation, transparency requirements and customer authentication measures, each of which will require careful consideration by market participants. Furthermore, the European Banking Authority (EBA) has been tasked with drafting and publishing technical standards relating to the provision of online payment services and exemptions to strong customer authentication. These technical standards will be awaited in anticipation by the payments industry due to their potential impact and the EBA will face some pressure to publish these in sufficient time for everyone to comply.
Once certain technical details of PSD2 have been finalised, it will be voted on and adopted by the European Parliament and the Council, following which EU member states will have two years to implement them into national law.
Ralf Ohlhausen, Chief Strategy Officer, PPRO Group states: “The consensus on PSD2 is great news for the payments industry in Europe, but only if the technical standards and security measures to be defined by the EBA will allow for practical implementation, create room for innovation and most importantly, support ease of use for the consumer. If the EBA can square this circle, the new regulation will promote technology on a European level and therefore encourage the Fintech environment to do what it is best at: innovate.”
The PPRO Group’s opinion is that the consensus should be viewed positively because the increasingly popular real-time bank transfer payment method will become available across all of Europe instead of just the few countries where it has an established presence (e.g. Germany: SOFORT, giropay, InstantTransfer; Netherlands: iDEAL). From a merchant’s perspective, the benefits of this payment method are manifold: very broad reach, instant confirmation, no chargebacks and high security. In addition, lower fees will likely be charged compared to cards or other payment methods, given that there is no provision for any interchange fee and banks will not receive compensation for providing access to their accounts.
From a consumer perspective, this will allow anyone in Europe owning a bank account, i.e. almost everyone, to pay online without having to open and secure any additional account or payment instrument that could be hacked or misused. In addition to security, the advantage for the end users of this payment method is that they – not the merchant – are initiating the payments, meaning that they have full control of timing when funds are taken from their account and they do not have to disclose any sensitive personal data to anyone.
The PPRO Group is already the leading aggregator of real-time bank transfer payment methods in Europe and wherever they are available worldwide. The PPRO Group is, therefore, in a prime position to extend its offer to PSPs by supporting real-time payments from all banks in Europe once PSD2 enters into force.