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Should there be a PSD3 to really open the market?

Since PSD2 became effective in January 2018, the market has slowly started to act on it. We see that until now only a few banks have published their PSD2 APIs. The main reason for this slow take-up lies in the fact that the RTS (Regulatory Technical Standards), which determine how some of the PSD2 stipulations have to be interpreted, only become effective as of 14 September 2019.

But don’t be mistaken. Even though there’s not much visibility yet, behind the scenes the preparations are definitely ongoing. Looking at the most effective use cases, both from the side of the banks as from the sides of other parties like PSP’s, retailers, Telco’s, consumer finance companies, insurance companies et cetera, the market is definitely preparing. But to effectively pursue the opportunities that arise from PSD2 takes time, because the access to the account functionality has to be integrated into a wallet, or connected to a loyalty system, or to a credit scoring engine. Also the go-to-market takes time because testing is needed, which means preparing demo’s, Proof of Concepts, et cetera.

The market has been waiting for the RTS, to bring the clarity needed to achieve the goals of PSD2. And indeed, the RTS did bring clarity on certain aspects, such as strong customer authentication. However, they did not provide a standard for the exchange between the TPPs and the banks. As a result there’s a serious gap which now needs to be filled by the market. By not providing such a technical standard, different interfaces may appear which could – as we have seen in SEPA – lead to hundreds of standards. And, needless to say, this is not very useful nor efficient.

Although as a company we actually benefit from a diversity of standards – our core offer having a single API that potentially reaches all banks in Europe – equensWorldline still actively pursues the creation of such a technical standard – or at least a standard framework since we are convinced this is the best way forward for the market as a whole. For this purpose, we play an active role regarding the actual implementation of PSD2, e.g. how the secure customer authentication has to take place, the use of standard interfacing between banks and TPPs and the set-up of a dispute management process. In this respect, we founded CAPS (Convenient Access to PSD2 Services), an open forum that proposes solutions to the technical, business and operational issues faced by potential PSD2 stakeholders across Europe. In addition, we are an active member of the Berlin Group’s implementation working group for XS2A PSD2 standards, and we are participating in numerous ERPB working groups.

PSD2: impact and benefits

Looking at the impact of PSD2, it’s safe to say that it has impact on all market parties, but it is certainly the most threatening to banks since new players will enter their domain and will get access to bank accounts and thus to the customer of the banks. For TPPs the core pain is to get the reach to the x-thousand banks across Europe, a challenge that can be met with our core offer that enables them to reach all the different banks with one API.

I guess the ultimate winner is the end customer, who for instance will be able to get an integrated overview of his financial situation with aggregated bank data and a better customer journey on his payments online but also in store.

However, looking at the array of opportunities created by PSD2, I believe that – besides the end customer – there can be a lot of winners, banks included. Banks could actually be one of the big winners if they have a (strategic) plan to structurally deploy the required activities. For example, banks are financial service providers that could provide personal finance management (PFM) services towards their (retail) clients. In addition, they are providers of loans and mortgages which process can be significantly be uplifted using Account Information Services combined with credit scoring. What’s more, they are often also selling payment and cash management services toward business clients, which could be extended and enhanced with PIS and AIS functionality.

Ultimately, PSD2 provides a better balance in the industry regarding interests of merchants, corporates, banks, financial service providers, PSPs etcetera since these companies can become a TPP themselves. PSD2 also provides a balance in usability and security, the latter of course being one of the main pillars of the banking industry.

PSD3: to be or not to be

Whether PSD2 will really open the market is still a question, which is difficult to answer at this point. From a customer journey perspective the regulation – Strong Customer Authentication stipulations specifically – actually seems to be somewhat contradicting to the “invisible payment” trend, which stems from the fact that a payment is a necessity, not something we experience as something nice to do. So, a lot of creativity is required to bridge that gap. In addition, the creation of a standard, should make life easier for TPPs to connect to the different banks and enable them to focus on the creation of innovative payment means and the optimal use of account information. But as said, we are not there yet. It will depend somewhat on how the situation will evolve in the coming months and years; does a standard emerge in the end? Do banks allow TPPs to do their own authentication? How open will banks be in the future? All these developments will determine if there will be a need for a PSD3, or not. As a leading player in the industry, we will closely follow what happens. Time will tell!

Watch Finextra interview

If you found the topic of this blog interesting, we invite you to also watch the recent video interview with Finextra.

To create awareness and to support the market, equensWorldline has created several whitepapers, including a practical step-by-step guide for parties who want to become a TPP. In addition, equensWorldline provides an array of PSD2 services from compliancy for banks, authentication services and fraud risk management services to TPP services, both technically for companies that gather their own TPP license as well as white label TPP services and merchant services on PIS and AIS.

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