The way we make payments is about to change (even if we can't see it)
It is invisible to most consumers and businesses, but behind every bank payment that is processed is a thriving payments industry that is preparing for significant change in the forthcoming months.
The changes are driven by the new Payment Services Directive (PSD), PSD2, which came into force in January of this year, and which must be transposed into national legislation by January 13 next year.
PSD1 was introduced a number of years ago to raise competition within the European payments market, to increase non-bank participation in the payments industry and to strengthen consumer rights by implementing a standardised set of rules across the EU and EEA regions. PSD2 is a regulatory revision, further extending the scope of the first directive across several areas.
The PSD2 legislation also covers transactions to or from the single euro payments area - aiming to break-down barriers and increase integration in the European payments market by facilitating market access throughout easier cross-border-service provision.
So, what is all the fuss about and what benefits will PSD2 bring?
The main areas of controversy with PSD2 is the introduction of a new set of payment providers, namely a payment initiation service provider (PISP), an account information service provider (AISP), and an account servicing payment service provider (ASPSP). The ASPSP (essentially the core business of a bank) provides and maintains accounts. PISPs and AISPs are a new set of payment providers that are allowed to initiate payments and display consolidated information from one or more accounts a user holds with another payment provider.
The PISPs and AISPs base their payment initiation and account information services on access to the ASPSP's accounts with PSD2 making it mandatory for ASPSPs to give access to PISPs and AISPs. Access will of course be governed by very specific rules within the legislation ensuring PISPs and AISPs are not given unconditional access to the bank's vaults.
With change brings opportunity and PSD2 is no exception. On the one hand, there will be increased payment and transaction services and therefore opportunity for challengers and alternatives to enter the banking industry, and the opportunity for Northern Ireland's FinTech industry to drive the competition in that market.
On the other hand, while it is evident PSD2 puts a new framework in place with the potential to turn the incumbent banks into ASPSPs, there is an opportunity for power to shift towards ASPSPs if strategic action is taken.
The potential for combining payment initiation services, with account information services to establish new, sophisticated financial aggregation, money management and customer advisory services, would place a traditional bank at the forefront of these new markets.
With increasing customer demand for digital and online banking services, traditional banks cannot afford to lose this battle. Digitally enabled challenger institutions however are backed by strong capital investors, willing to act fast on the latest trends and digital advancements. Incumbent banks need to act strategically and fast as the deadline draws closer.
For consumers and businesses PSD2 has the potential to stimulate innovation and result in a new, inventive and value adding financial services sector, while perhaps creating a multitude of disparate offerings that increase complexity in the market place. Regardless, exciting times lie ahead for the payments industry.
- For further information or advice, Aine McKavanagh can be contacted at firstname.lastname@example.org Grant Thornton (NI) LLP specialises in audit, tax and advisory services