Impact of Payment Services Directive 2 on Financial Institutions

By : Andy Brown

November 30, 2016 09:00 PM


Time is running out for every financial institution (FI) operating in the EU to be compliant with the latest directive governing payments from the body.


The Payment Services Directive 2 (PSD2) builds on regulations set out in PSD1 in 2009 to help create a single, Europe-wide system for payments and member states are required to implement the rules into national law by 13th January 2018. But this shouldn’t be seen as just another regulatory requirement, as there are also some great opportunities available to FIs that take a positive approach to the directive.


What are the key changes?


The main aim of PSD2 is to make cross-border payments within the EU “as easy, efficient and secure as national payments”. Among its key factors are the introduction of two new types of payment services providers.


This will enable authorized third-parties to access accounts and initiate payment transactions on a customer’s behalf, without incurring additional surcharges. This is expected to give consumers more options beyond debit and credit cards when it comes to making digital payments.


A range of opportunities


Although some banks may worry that this will leave them at a disadvantage by allowing third parties to come between themselves and their customers, this does not have to be the case. In fact, there are several opportunities that will emerge as a result of the regulation that should benefit both FIs and consumers.


For example, PSD2 should allow FIs and other fintech firms to foster new collaborative partnerships to offer more advanced digital payment services and expand their offerings beyond traditional banking services.


This can lead to the creation of new revenue streams. Capgemini highlighted one example of a bank that worked with an online travel agent to create a new API, which enables the agent to offer customers foreign currency exchanges through the bank when they make a booking.


For the bank, this opens up a new business model at very low cost, as well as giving it access to the travel agent’s customer base as potential future customers, and is just one possibility of how greater access to payments can enhance collaboration and lead to the development of new services.


Access to accounts can also help banks build up a wider picture of their customers’ behaviour and preferences, enabling them to tailor future efforts to their exact needs and expectations.


Managing the risks


While there are many opportunities for banks to take advantage of PSD2’s new access regulations, it does not come without its challenges.


Capgemini noted that one major concern for banks is that it will allow competing fintech providers better access to customers, allowing them to bypass traditional banks and strain relationships. Other issues that must be considered include what impact, if any, open access to accounts may have on fraud detection and prevention strategies.


But with the right management strategies, these are concerns that can be met. As PSD2 has been described as one of the biggest shake-ups to the payments market for years, how FIs react to these challenges could define their ongoing success for many years to come.


To learn more about the opportunities and risks banks can expect as a result of PSD2, sign up to our webinarson the topic next month, where I’ll be offering more insight on what FIs can expect from the changes.

Andy Brown

Marketing Director, Payments

Other articles by this author

Andy has nearly 30 years experience in e-payment systems from the delivery and support of systems in the Far East and Europe and in the product management and marketing perspective. Based in the UK, Andy is responsible for marketing NCR payment solutions.