Liberating Consumers Through Payments

Esther Pigg
Senior Vice President, Product Strategy FIS Payments Division
Posted on July 14, 2016

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PSD2 Irresistible March Toward Global Empowerment

For once, the sound bites being used to describe upcoming changes in the global banking industry may actually be too conservative. The latest PSD2 (Payment Services Directive 2) may seem like an exclusively European initiative, but banks around the world, especially in the U.S., need to consider the impact. This directive is likely to revolutionize how consumers interact with their banks and the protection they can expect when paying online or while on a mobile device.

The EUs Two-step Payments Plan – Access All Areas

After the introduction of the single euro currency over a decade and a half ago, the E.U. (European Union) was already working on unifying the digital payment space. The original PSD1, adopted in 2007, championed the E.U. vision of a single payments market. The aim was to make cross-border payments within member states as easy, cheap, efficient and secure as a traditional domestic payment. This opened up the door for new entrants to enter the payment space as PSD1 allowed for PSP (payment service providers) as distinct from full-on banks. A PSP could setup business quickly by taking advantage of lower barriers to entry and reduced compliance obligations. The SEPA (Single Euro Payments Area) was up and running.

The follow-up PSD2 adopted in 2015 aims to offer improved customer protection when paying online, promote innovation in online and mobile payments and greatly increase the speed at which payment transactions are credited within E.U. states. Traditionally, payment details were entered on the merchant’s website and the merchant got the money from the bank via a few intermediaries. Under PSD2, retailers now ‘ask’ consumers for permission to use their bank details and then receive payment directly from their bank without the need for any intermediaries.

The flipside of PSD2 is the empowerment of consumers; now consumers own their personal information. Banks are obliged to open up their systems to give PSPs access to account information to facilitate transactions requested by their customers. It is the consumer – not the bank – that controls who can access account information and who can initiate transactions on their behalf.

The E.U. directives are not trying to remove banks from the equation. The aim is to harmonize the diverse payment landscape between countries and PSPs. The consumer is king so by leveling the playing field competition is encouraged, giving the consumer better value, more choice and ownership of their information.

Coming Soon to a U.S. Regulator Near You

But isn’t the U.S. payment landscape already a unified single entity? And aren’t the trends of Payments in the U.S. already moving down the faster payments route to offer improved and innovative online and mobile payment solutions?

This may all be true, but PSD2 matters in the U.S. because it is about more than just speeding up payment processing.  The biggest impact is likely to be the consumer control and protection elements embedded within PSD2. And these may be imported sooner rather than later.

By putting consumers in control of their account information, banks will need to implement open interfaces into once closed banking systems. Moreover, third-party payment initiators will be generating transactions on behalf of consumers from mobile phone apps, web shops, accounting packages, main street POS devices, etc. Consumers will be able to authorize all aspects of whom and what can access their account information. Consumers give the bank permission to release account information (transaction and balance history) for specific purposes to specific third-party applications. They can apply limits to transaction values and also set time limits for removing access – it is not about giving unlimited access to everything forever.

Security remains non-negotiable and any bank account access must conform to established standards that control the use of Personally Identifiable Information (PII). Banks are trusted environments, the dependable stewards of sensitive consumer information, and that is not about to change. In fact, the requirement is to become more secure in order to facilitate open access with greater consumer protection and reassurance.

While the E.U.’s PSD2 initiative is a regulatory obligation (conform by January, 2018), the U.S. may take a different approach. The rollout of faster payments in the U.S. is currently purely voluntary. It is likely that many of the consumer protection and open access to accounts elements will receive stronger legislative attention to work effectively.

Conclusions Worldwide Payments

In some ways, PSD2 is a response to the highly regulated European banking market as it opens up to new entrants and non-banks through regulation. In the less regulated U.S., the disruptions are already well advanced in the market. However, alternative payment providers are now increasingly coming under more regulatory scrutiny, especially in the areas of consumer protection and account access.

Larger U.S. banks are already taking steps to prepare for payment trends to move toward a more consumer controlled payment era, but smaller regional and community institutions will need help to prepare the ground. The inevitability of open access represents a fundamental change in operations across the enterprise; the entire payment infrastructure must be opened up through common interfaces and standard APIs.

We are seeing the birth of new players in the market that aggregate account information across multiple financial institutions and geographic locations to enable more flexible payment initiation. Regardless of the potential, the most important element is still relatively unknown: how will consumers respond to the new trends in payment technology and how will the new services be able to meet expectations?

In closing, we’d like to know what you think: Is there a real demand by consumers for more open access to their bank accounts?  What do you think?


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Esther Pigg
Senior Vice President, Product Strategy FIS Payments Division

Esther leads the Product Strategy team for the Payments division of FIS that spans debit, prepaid, credit card, merchant, network and loyalty programs. With extensive experience across the banking and payments technology industry, Esther focuses her team on developing long term product strategy for U.S. and global retail payment products to effectively engage the markets FIS serves.