Once 2018 arrives, significant new payment and data-sharing rules will take effect in Europe, and the fallout is expected to affect banks, merchants and technology vendors globally.
What the Payment Services Directive (PSD2) will primarily do is accelerate trends that are already underway, most notably the migration of payments away from banks toward digital and mobile-centric technology companies.
PSD2 also pressures the vendor community to provide consulting services along with technology to respond to a complex and quickly emerging environment. The Nordic digital payments company Nets and the digital payment software company OpenWay this week launched a collaboration that includes a major push to convince merchants and issuers that they can monetize PSD2.
Payments industry stakeholders such as banks have no choice but to pursue new revenue streams, because more types of companies can offer payments and credit products than before, which means card issuers face a surge of new competition.
"PSD2 provides for a more holistic approach for financial services," said Tuomas Nenonen, a manager of product and business development for Nets. "So rather than having a product or products that are siloed at different types of businesses, it's more distributed."
PSD2 requires banks to share data more openly with third parties such as mobile payment startups, personal financial management and budgeting apps and other mostly-digital companies that provide specialized financial services. There are also requirements to toughen security to protect from payment fraud and breaches, and the phasing out of screen scraping, an older method of aggregating data in favor of application programming interfaces.
The free flow of data that PSD2 enables pressures issuers and merchants to be even more open to new payment models such as social payments, e-commerce transactions, digital installment payments, contextual payments and omnichannel shopping.
"The ability to look into new lines of data gives companies the chance to more aggressively market to consumers," said Alan McIntyre, Accenture's global banking lead.
Nets and OpenWay call their model ELASTIC, which is an acronym for ease of use/liquidity/availability/safety/transparency/instant result/convergence." ELASTIC lists the compliance requirements, such as two-factor authentication, plus the use of APIs and other open development to ensure fast payments that are easy to use and deploy.
Working off of PwC research that found 40% of Gen Y respondents would consider banking with Google or Amazon, Nets and OpenWay contend "open banking" makes consumers' trust of a third party platform at least as important as familiarity with the retail brand or bank behind the offer.
"This supports more personalized services that an be passed on consumer payment preferences that tie offers and marketing to data, with even more information available than before," Nenonen said.
PSD2 environment opens the doors to telcos, insurance, gaming, utilities, travel and other industries to enter the payments industry, pressuring banks to not only join forces with these companies, but reimagine the way in which banks deliver transaction services to consumers, particularly as consumers' expectations for how payments should work are coming from outside the banking industry, from companies such as Apple, Amazon and Uber.
"Banks and fintechs will join forces to create more customer-centric offerings," Nenonen said. "So you'll have a bundling of traditional banking services with other services from startups that create a range of products."
Nets and OpenWay are not the only companies looking to gain share by easing acquirers and issuers into the era of open banking.
FI.SPAN specializes in building connections between banks and other companies. Modulr targets business-to-business payments with APIs and a dashboard that are designed to replace paper from business transactions that still remain largely check-based. And IBM offers a sandbox to test both PSD2 compliance technology and real-time payment processing.
"There is a question of whether the banking industry will move toward relationships," McIntyre said, noting HSBC has developed an aggregation engine that allows consumers to view different accounts from different providers in the same location. "Thus far there's been more of a view of banks in Europe to see this as a compliance issue and banks in the U.S. to see it as a competitive issue—everyone's going after everyone's customers."