Views - Beyond Payments

Banking without Borders: How PSD2 is Setting Payments Free

New EU regulations pave the way for FinTech companies to change the payments industry as we know it. PSD2, an extension of the original PSD, opens the market to emerging and innovative FinTech players. For the industry’s incumbents that embrace this change, there are many upsides to the new regulations – including increased revenue and customer retention.

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Continuing digitalization

When it comes to financial services, Europe is not one Europe. While the PSD provided the legal foundation for a  single market for payments and paved the way for cross-border payments in the EU, digitalization has progressed. New services for online payments have appeared; services that have brought innovation and competition, but were outside the scope of the PSD and thus not regulated. This has led to different interpretations and local implementation, leading to regulatory arbitrage and legal uncertainty.

Opening up the market

PSD2 aims to update and complement the rules put in place by the PSD and level the playing field for payment service providers. The introduction of PSD2 opens the market up to two new types of third-party players (TPPs) – Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs). Both can be bank or non-bank institutions. These TPPs will become an extension of the banks they pair with, creating the perfect environment for an open cross-border banking ecosystem.

Figure 1: A timeline of the history of PSD and PSD2, RTS and GDPR. 

Seeing the effects

The introduction of PSD2 will have a widespread effect on banking and the European payment structure as we know it, albeit not immediately. The main development garnered from the initiative’s introduction will be an increase in investment in financial services that work towards a unified payment landscape. Banks that move with PSD2 and work with TPPs will become more popular with stakeholders, leading to higher retention rates and revenue increases.

Getting ahead

The first movers in the PSD2 directive will build trust with their customers, as they will be viewed as the industry standard. This will encourage competitors to explore collaboration and adopt a new way of open banking. Getting on-board an open solution before January 2018 is highly recommended for any player wanting to get ahead in the fast moving world of finance and financial technology.

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