The revised Payment Services Directive (PSD2)
How to prepare your business for a new payments landscape?
The revised Payment Services Directive, better known as PSD2, will be implemented into Dutch legislation in 2018. This Directive is bound to have a significant influence on the current European payments landscape, both for financial institutions and payment service providers.
Background of PSD
After the introduction of PSD1, the European payment market remained scattered, and it became apparent that PSD1 was already surpassed by the rapid developments within the payments sector. PSD2 was drafted to repair this and to become a catalyzer for transformation, new business ideas and models.
The key drivers behind this regulation are innovation, consumer protection and competition, broadening the scope and the level of ambition compared to its’ predecessor PSD1. One of the means to achieve these goals is the enablement of new payment service providers to enter the market. Existing players in the payments market are expected to be forced to respond to the new developments and make use of the opportunities PSD2 offers.
Why Act Now?
It is not yet clear on which date PSD2 will be implemented into Dutch legislation. The Dutch Ministry of Finance has persistently communicated that it hoped to finalize implementation till the end of Q2, but in the market, a further delay is expected. What is clear though is that implementation will take place in 2018, and as such, organizations that will need to comply will have to act imminently. Complying with PSD2 takes time, even for those organizations that are already authorized under PSD1.
But mere compliance is not the only reason to act now. Considering its significant impact, PSD2 is not to be seen as a compliance exercise, but as an opportunity – a chance to transform the business and to get prepared for the new payment era to come.
Seize the Opportunity
Apart from creating robust competition by attracting new players, PSD2 provides a wide range of opportunities to develop new services and reduce costs. This can be done, for example, by starting services around account information (‘Account Information Service Provider’) or payment initiation services (‘Payment Initiation Service Provider’).
What does this mean in practice? PSD2 requires from banks to provide automatized access to their customers' accounts to authorized third parties. An Account Information Service Provider can therefore consolidate account information from multiple customer accounts and financial assets in one place. You get access to a wider array of aggregated customer data that could increase your understanding of customer needs. Extended data on customers' accounts and transactions can help to further detail your target offerings, to enlarge or even re-invent products and services and to improve user experience. Using this data and insight on spending patterns, a bank, for example, could provide third-parties’ insurance or lending products that best fit client’s specific situation. That may result in increased market share and enhanced customer loyalty.
PSD2 allows Payment Initiation Service Providers to initiate payments on behalf of the payers through the bank’s payment infrastructure. This way, PISPs act as a linking platform between the payee and the payer. For the payers, this represents a considerable advantage as they no longer need to process payments through their banks. The payee benefits as well, as he immediately receives confirmation about the payment and can proceed with the order dispatch. That eases, enforces and secures the whole payment process.
PSD2 impacts several areas that need to be considered. First of all, the newly created “game rules” are relevant for both existing and new payment service providers: new players need to be compliant with the new regulation and obtain a regulatory license. At the same time, the existing players will have to go through a re-authorization.
Are you a marketplace or booking business working via the “commercial agent”- exemption under PSD1? Possibly, this exemption might not be available for you once PSD2 is implemented. The available exemptions under PSD2 are now relatively limited, meaning you should obtain a payment license or apply for other available options.
Many companies now use external parties to handle the payments of their customers. However, these third parties charge large sums for payment processing, pressing down on margins. PSD2 provides you with the opportunity to create a payment service provider, to improve the overall customer journey and therefore possibly to enlarge your sales potential, while decreasing costs and keeping the cash flows within your organization. Furthermore, PSD2 upgrades the existing payment infrastructure by implementing stricter requirements on customer authentication and protection, so payment and e-money institutions should assess existing internal process to remain competitive.
What can Deloitte do for you?
Deloitte is a recognized leader for business strategy, digital transformation, cyber risk and enterprise architecture, as well as a leader for financial services business innovations. We can design a successful strategy to put PSD2 into practice, keeping you ahead of the competition. Furthermore, our professionals can help ensure a high level of compliance with international, European and national legal frameworks. Deloitte can guide you through all steps of the PSD2 licensing and implementation process by mobilizing the right people, skills and technologies. As a result, you elevate your business to a higher level while meeting your obligations towards the industry, clients and regulators.