While European banks worry about losing revenue because of the new Payment Services Directive (PSD2) requirement for opening up access to application program interfaces (APIs), they will benefit from the coming marketplace of premium APIs.
Rules within PSD2 order banks to standardize just three APIs—balance check, statement and payment initiation—and provide them free of charge to challenger institutions by January 2018.
According to John Egan, senior director at Anthemis Group SA, banks are expressing concern over ambiguity of infrastructure deployment, since PSD2 places financial burden on banks alone.
“Coming off the back of 10 years of low interest rates, decreased revenue streams and general disadvantaged cost ratios, it’s a difficult time to deploy this," Egan said.
But a consequence of PSD2 will be the jumpstarting of a marketplace of premium APIs that will bring new revenue opportunities for the bank and value-added services to consumers, he said.
It’s already started to happen. For instance, banks are building APIs that give dynamic foreign exchange pricing, ones that streamline identity and authentication and ones that automate anti-money laundering compliance. Jump forward several years and Egan sees an environment where consumers pay for access to bank APIs that sit in their web browser allowing them all sorts of things, from anonymizing data to managing and getting advice on purchases.
As it relates to the clause within PSD2 that “the provision of payment initiation services shall not be dependent on the existence of a contractual relationship,” some wonder whether banks will insert a fee for consumers since they might not be able to charge third parties. But even if they do, consumers might not be the ones that pick up the tab.
Third parties might volunteer to pay consumer fees if to improve the customer experience, according to Steve Kirsch, founder and CEO of Token.io, a software startup enabling banks to build API callers for transactions.
For instance, if a consumer is checking out through Amazon, Amazon might decide to pay the fee to push consumers to a preferred payment method. And merchants will see pulling money directly from a consumer’s bank account as the preferred method, since it’s cheaper and faster than accepting a credit card transaction.
Kirsch likens the situation to that of the bitcoin industry.
“Just like in bitcoin, you can access all the things without a contract but most transactions come with a small fee,” which businesses can absorb for clients, Kirsch said.
“Just because it’s open, doesn’t mean it’s free. Open and free aren’t the same thing,” he continued.
While Egan says banks charging per transaction instead of for APIs is a leap, he agrees retailers will incentivize consumers to pay via direct transfer.
Really, “the most direct victim of PSD2 are the credit card schemes,” Egan said. “It’s an all out attack of them. It seems Europe doesn’t see a role for credit cards 10 years from now.”