The Payment Service Directive (PSD) of 2007 is being updated by PSD2 after much debate between European institutions and stakeholders. This legislation comes along with a number of other initiatives from the European Commission. Lars Tebruegge, independent payment consultant, writes

Interchange Fee Regulation, the update of the rules on Anti-Money Laundering and a Directive on the Transparency and Comparability of Payment Account Fees are some of the other payment initiatives.

The objectives of PSD2 are manifold and should be studied in detail by companies active in the payment business. One of the key new principles is that Third Party Providers (TPP) may access the bank payment account of a customer, if the customer has given a respective mandate to the TPP. Up till now, most European banks deny this access to anyone other than their own customers. With PSD2 the banks will need to open up access to accounts. One of the TPP groups defined in PSD2 is the so called ‘Payment Initiation Services’.

As their name suggests, these TPPs will be able to initiate payments on behalf of the consumer. As the banks generally do not charge their customers for a credit transfer, this method may then be utilised by TPPs. This could cut out several layers of intermediaries or middlemen so that, potentially, costs for the merchants are reduced. Of course, the TPPs will bear the burden of regulation and compliance, but they have an excellent starting position – relying on an infrastructure already in place.

A challenge in building up these payment initiation services is reaching a critical mass on both the consumer and merchant side. Considering the ease of reaching all consumers with a bank account on the one side and offering the merchants a very reasonable proposition on the other, it seems quite certain, that the European payments market is set for change.

There are other factors which have a significant impact on just how much the market will change. Possibly, the most prominent factor will be the Regulatory Technical Standards (RTS) on strong customer authentication and secure communication under the revised Payment Service Directive currently being developed from the European Banking Authority (EBA) based in London.

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Amongst other issues, the RTS will define for which transactions strong customer authentication (SCA) will be required and how this can be achieved. Currently many aspects are still unclear and handled differently within the EU member states. If the interpretation of SCA turns out to be very stringent, it will make all transactions for which SCA is required cumbersome and will add yet more obstacles to business already under pressure.

Consequently, many eyes turn towards the EBA, which has received 120 consultation replies to a discussion paper. First statements from EBA highlight the necessity to find a fine balance between usability and security. The draft RTS are expected for the summer 2016, followed by another consultation period. We will then have a better understanding as to whether the RTS and the PSD2 have the power to truly change the game in payments.

Lars Tebruegge is an independent payment consultant based in Frankfurt and works many with European payment services companies including Anderson Zaks. He worked at the Association of German Banks (BdB), Berlin – Germany, where he was responsible for strategy, development and the realignment of the debit card-system giro card (formerly: electronic cash).

Anderson Zaks is a leading Omni-channel Payment Service Provider (PSP) based in the UK that delivers highly reliable, fast and secure payment processing services to thousands of businesses located across the UK and continental Europe.