Digital transformation at the time of PSD2
In this time of global thinking and smart working, we have discovered how crucial digitisation and service transformation is, to reach those who cannot be reached or those who cannot travel.
According to Gartner, only one in four companies will grow with dignity after the covid crisis. Certainly not an inviting prospect. But what does all this have to do with PSD2?
And how can we seize new opportunities to innovate and renew?
Let’s go back a bit. In 2018, there was an earthquake in the banking world: the PSD2 banking regulations came into force in the European Economic Area (EEA), with go-live expected in September 2019. The purpose of this directive was to broaden the perimeter of the previous one in the field of payment services (PSD = Payments Service Directive), seeking to increase the development of innovation in the sector and opening up to new players that do not necessarily have to be banks, the so-called Third-Party Providers (TPPs).
Since the entry into force of the first PSD, the evolution of technologies and the entry of new fintech players in the financial sector have created an urgent need to review and redefine PSD in light of the new scenarios, which were considered “out of scope” in the first regulation. The additional “scope” was, therefore:
- increase the security of payments and the protection of consumers and their data;
- encourage innovation and competition in the sector;
- ensuring the same “playing field” for all market players.
Before and after
Before continuing, a parenthesis is obligatory to explain how the system works and to clarify the meaning of the acronyms that will be used.
Before PSD2, users accessed their bank accounts through online platforms managed directly by the PSP (Payment Service Provider, i.e. the bank, payment institution or e-money institution that provides banking and/or payment account management services).
Once the services necessary for the implementation of the legislation are in place, users can (will) access their accounts and payment services via intermediaries (TPPs) who communicate via APIs with ASPSPs (Account Servicing Payment Service Providers), those who directly control the customer’s online banking account in its entirety, and who have a direct service contract with the account holder, i.e. the bank, payment institution, etc. By obtaining licences, the new legislation therefore provides for the introduction of two new types of TPPs:
- AISP (Account Information Service Provider): the entities that, once authorised by the user, can access the transactional information on the accounts that the user holds in the different banks.
- PISP (Payment Initiation Service Provider): a service provider who, at the user’s request, places the payment order on an active current account with another provider. The PISP thus acts as an intermediary between the user who has to initiate a payment and his own online account.
Since we all work better when we are under stress, many institutions have chosen to take care of this the “day before” the go-live, flocks of consultants have pulled all-nighters together with bank staff in order to allow us to have an (almost) stable technological situation to devise new services.
So what now?
I am writing from home, given the time of year, and all I can see out of the window are couriers carrying goods. Everything I could do, see, buy was thanks to digital services that I could conveniently pay for. PSD2 is a hotbed for the creation of innovative services in line with the digitisation and evolution of customers.
In order to avoid losing leadership, payment institutions are forced to innovate as PSD2 effectively redefines the European payments market by opening the door to open banking. In such a context, tech giants (Google, Facebook, for instance) will also be able to act as credit institutions, also providing forms of financing, small loans and investments.
Emerging models and opportunities
The ability to find out more information about a customer then allows content aggregation to get an integrated view of their spending habits and wealth, thus building value-added services that leverage this information.
The most popular emerging business model is, in fact, money management, i.e. the service of deepening and managing one’s financial and spending situation (PFM). If it can be considered a commodity for private customers, it is certainly a value-added service for companies when linked to electronic invoicing, payroll management, debt collection, payments, personnel, projections and everything else that can become a facility in financial management.
On the payment side, there will be the possibility to initiate a transaction without the customer necessarily having to own a card (credit, debit or prepaid) and potentially at lower costs for merchants. Payment initiation, the ability to execute payment transactions directly from the customer’s account, is in fact another emerging model on which fintechs that propose themselves as TPPs are moving.
On the other hand, from a B2B perspective, without bothering the end customer, open banking will undoubtedly lead to the emergence of a business model linked to the provision of APIs as a Service to access aggregated and enriched data (and it is already doing so: the fintech Token). Knowing how to interpret the market, trends and innovations is not just a job for fortune tellers.
At Antreem, together with several clients, we are working on the design of innovative business services that exploit the potential of PSD2, recommending directions and solutions that simplify the lives of all actors involved in a process. Digital banking and innovation are important issues that we are actively pursuing together with ABILAB, on a number of fronts.
“The enormous burden of traditions, habits and customs that occupies most of our brains mercilessly weighs down the most brilliant and innovative ideas”, says José Saramago.
And it’s perfectly true. Until major shocks occur that force us to think differently. PSD2 is one of them, the current period is another.