The European Union, now facing the United Kingdom’s upcoming "Brexit," still faces the monumental task of fully uniting the Single Euro Payment Area (SEPA). The Payment Services Directive (PSD) created a competent legal body to regulate the market. A revision-PSD2-broadens its reach to include payment transactions that either originate or end in the eurozone and deepens its coverage in an effort to increase competition and reduce costs.
The latest research, Payment Services Directive 2: Worldwide Industry Implications, explains how PSD2 pushes the limits of account access, security, and competition. According to the report, credit card banks will feel the financial impact of the European cost-cutting measures, which will likely reduce non-interest bank revenue by €1 billion.
The report advises that keeping pace with the mandates will require credit card banks to think ahead of the curve and maintain their control of the market or be ready to cede their revenue streams since PSD2 defines two new roles that eliminate financial institutions’ exclusive control of customer data. The Account Information Service Provider (AISP) and the Payment Initiation Service Provider (PISP) roles are intended to improve consumers’ access to their accounts, but opening access brings a new layer of financial technology risk.
"The Payment Services Directives have noble intentions, but regulators must be careful not to open the doors to loosely regulated nonbanks simply to spawn innovation and reduce costs," commented Brian Riley, Director, Credit Advisory Service. "PSD2 in some ways is a logical progression, particularly as it commands tighter point-of-sale control and better consumer protections. For financial institutions, opening up proprietary data channels is potentially risky, though. The benefits remain to be seen: Will this new access help? And, will Europe create an even market for pricing, so that fees and interest are consistent throughout the area?"
Highlights of the research report include:
- A review of both the original Payment Services Directive, the new PSD2, and an expectation for PSD3 for the next decade
- Application Program Interfaces (API) and the stress of legacy systems
- Discussion of the new functions called Account Information Service Provider (AISP) and the Payment Initiation Service Provider (PISP) and why they add a new layer of risk to financial services
- A review of Access to Accounts (XS2A) suggesting that regulators wearing rose-tinted glasses might be on a quest for a viable pan-European payment solution
- The impact of extending PSD beyond two-sided eurozone parties.
1. Executive Summary
3. A Brief Review of the Original PSD
4. Payment Services Directive 2
5. The ABCs of PSD2
6. Significant Implications for Payments
- Account Information Service Provider (AISP)
- Payment Initiation Service Provider (PISP)
- Access to Account (XS2A)
- Application Program Interface (API)
- Extending the Reach of the Payment Services Directive
- Strong Authentication
- Banning Surcharging and Consumer Protection
7. PSD2 Industry Implications
List of Figures and Tables
Figure 1: Disparate Financial Services Pricing in Europe Across the Credit Card and Mortgage Product Spectrum
Figure 2: Objectives of the Original Payment Service Directive
Figure 3: PSD2 Imperatives Clarify Seven Important Aspects of Payments
Figure 4: PSD2’s New Account Information Service Provider (AISP) Function Disrupts Banks’ Control of Data
Figure 5: PSD2 Adds a New Player to the Payment Scheme: Payment Initiation Service Provider (PISP)
Figure 6: PSD2 Extends PSD’s Mandates Beyond Europe
Figure 7: PSD2 Requires Secure Authorization Techniques
Figure 8: PSD2’s Likely Impacts on the Payments Ecosystem
Table 1: Important PSD2 Terminology