Learning more about what’s coming under PSD2

The second instalment of Payment Services Directory, “PSD2”, will come into effect on 13th January ’17. By that date, EU member states are expected to have implemented the new payment rules as outlined in PSD2.

I recently listened to a radio programme where ex Barclays boss Antony Jenkins described PSD2 as “an opportunity for third parties to access a person’s bank data and to do something with that data.” He thus captured the core what PSD2 is all about: opening up banking data and using that data to create better, more integrated customer experiences.

Jenkins also talked about how in the new PSD2 world banks effectively provide the utility components that other services build on, acting as the frond end and being more customers experience focused. One can already see from the success of Fintech startups such as Monzo, Remitsy, Varo Money and Abra the distinction between financial service players that focus more on front-end customer experience and those concentrating on the underlying ‘plumbing’. Jenkins mentioned the concept “a browser for your financial life”. Viewed within the context of PSD2, the idea of a central browser for one’s financial life really resonated with me.

All of this made me have a first stab at understanding the essence and ramifications of PSD2. This is what I’ve learned sofar:

Develop new payment solutions — Account Information Service

Under PSD2, an AIS is defined as an “an online service to provide consolidated information on one or more payment accounts held by the payment service user with either another payment service provider or with more than one payment service provider”. As customers, we can benefit from AIS through its ability to offer an aggregated view of a customer’s accounts. Having this consolidated view should make it easier for customers to analyse their transactions and spending patterns across a number of their payment service providers (‘PSPs’).

Develop new payment solutions — Payment Initiation Service

In essence, a PIS acts as an online service which accesses a customer’s payment account to initiate the transfer of funds on the customers’s behalf, provided the customer has consented and authentication has taken place (see Fig. 1–2 below). Payment initiation services thus provide an alternative to paying online using a credit card or debit card. PIS aren’t allowed to hold payer funds or store sensitive payment data but can initiate payment transactions on behalf of customers.

To me, the future payment initiation capability for “merchants” feels like the most exciting opportunity that PSD2 offers. It means that merchants such as ecommerce marketplaces can access the payment accounts on their customers’ behalf and initiate payments, without the need for credit or debit cards. PIS will be allowed to communicate securely with the customer’s bank and seek information required for payment initiation.The PIS will use APIs to link to the merchant’s website or app with the customer’s bank.

Fig. 1 — PIS workflow, merchant acting as a Payment Initiation Service Provider (‘PISP’) — Taken from: https://www.temenos.com/globalassets/mi/wp/16/temenos_psd2_whitepaper_v2.pdf

Fig. 2 — PIS workflow, merchant goes through a PISP to collect money from a customer’s bank account — Taken from: https://www.temenos.com/globalassets/mi/wp/16/temenos_psd2_whitepaper_v2.pdf

Reinforced customer protection

Fig. 3 — Google 2-factor authentication example — Taken from: https://paul.reviews/does-two-factor-authentication-actually-weaken-security/

Main learning point: My biggest, initial takeaway from learning about PSD2 is that digital payment services will become a lot more seamless and easy. APIs will act as key ‘enablers’ of new opportunities to integrate customer’s financial activities and online behaviours.

Related links for further learning:

  1. https://www.linkedin.com/pulse/banking-apis-what-you-think-jason-bates
  2. http://www.eba.europa.eu/-/eba-paves-the-way-for-open-and-secure-electronic-payments-for-consumers-under-the-psd2
  3. http://www.iosco.org/library/pubdocs/pdf/IOSCOPD554.pdf
  4. https://www.finextra.com/blogposting/12668/psd2---what-changes
  5. http://www.pwc.com/it/en/industries/banking/psd2.html
  6. https://www.fca.org.uk/firms/revised-payment-services-directive-psd2/ais-pis
  7. https://www.temenos.com/globalassets/mi/wp/16/temenos_psd2_whitepaper_v2.pdf
  8. https://www.starlingbank.com/explaining-psd2-without-tlas-tough/
  9. https://www.fca.org.uk/firms/revised-payment-services-directive-psd2/consumer-protection
  10. http://www.bbc.co.uk/programmes/b08hpwbz
  11. https://www.gmc.net/blog/banks-beware-impact-psd2-and-xs2a-accelerating-digital-disruption

Product at ASOS, author of "My Product Management Toolkit", family, boxing and founder of @hiphoplistings and blogging via http://t.co/uGr5nRye