PSD2 unlatches the door to open banking. The new Payment Services Directive – PSD2 – is much more than just a simple regulation. These rules also change the way banks interact with the world. This is a revolution in the banking world.
'The significance of PSD2 goes beyond pure payment transactions,' says Filip Weynants, Regulatory Compliance & Transformation specialist for the financial sector at KPMG. 'The Regulation requires banks to give third parties access to the current accounts of their customers. Those companies can then initiate payments, but - more importantly - they can also collect data. That is revolutionary, because until now banks have essentially been closed domains and have done everything they could to protect their customers and to keep their customers' data for themselves.‘
Isabelle Blomme, Partner at the law firm K Law and responsible for banking and financial law, elaborates: 'The aim of PSD2 is to create a single market for payment services within Europe. In concrete terms, this is achieved in two ways. Firstly, the payment market will be broadened by allowing new players: Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs). Secondly, PSD2 also provides more consumer protection.'
This means that extra attention must be given to security of payments and protection of privacy. However, this will also lead to a reduction or even elimination of certain costs such as fees for the use of a payment card.
This EU Regulation must be converted into national laws in every Member State. In Belgium, it is happening in two steps. 'The first law, regarding the legal status of payment institutions, appeared on 11 March 2018. Among other things, it specifies the steps a company must take to become an AISP or PISP. A second law will set out the rules of conduct for companies with regards to payment transactions and consumer protection,' says Isabelle Blomme. Presently, there is only a cabinet-approved preliminary draft for this subsequent part, although Blomme believes the law should be ready before the summer recess.
Thanks to PSD2, the European market for payment transactions is evolving towards open banking: a financial environment that is highly digitized and where various players can be active alongside traditional banks. Who are these players? Filip Weynants is looking at, among others, the big tech firms that already have a platform that millions of people are affiliated to. Via PSD2, they can now also enter the domain of payment transactions and gain access to financial information. 'This gives them a very powerful way to approach customers via direct marketing.'
In this connection, Isabelle Blomme points out that PSD2 must be seen together with the GDPR, the European Privacy Directive that takes effect in May this year. 'A customer must give their explicit consent to initiate payments or request account information,' says the attorney. 'Moreover, the company may only use the data for that purpose. Only once you have obtained explicit consent from the consumer is it permitted to use that data for other purposes, and even then, the restrictions of the GDPR apply.'
In addition to the big tech firms, there are also the small financial technology companies. These are often start-ups that focus on specific niches in the financial world. 'These fintech companies are basically too small to really compete with a bank. On their own, they are probably not capable of developing a range of financial services that can rival those of a bank', Filip Weynants explains. 'But it's a different story if these small fintech companies can unite on a specific platform. A combination of fintechs, each with an outstanding customer experience in its own niche, could certainly offer solutions for all the financial needs of their customers.'
And what about the banks? 'They are definitely not sitting ducks,' says Filip Weynants. 'Open banking increases competition, but that can also be positive for banks. And it's a big opportunity.' Banks can enter into partnerships with small fintechs to offer innovative products, but they can also utilize their large platforms to promote their own products and services.
Banks are still trusted institutions, but they face a two-pronged challenge. They must update their technology so that they can offer the same smooth customer experience as the tech firms. 'But there's also a psychological aspect,' says Weynants. 'Instead of shielding everything, banks need to open up their platforms and enter into partnerships. Even if they perfectly follow the evolution in legislation and technology, the decisive factor will be the relationship with their customers. Adjustments to the banking culture will be necessary.'
What can KPMG do for you? KPMG helps banks comply with statutory requirements and crystallize their future strategy in light of the changing market. Our specialists help you find the appropriate technology and partnerships, but they also look at the internal operation and flexibility of your organization.