The future of European payments is coming into focus, as the second iteration of the Payment Services Directive (PSD2) approaches a significant deadline on September 14, 2019. But there is still some way to go before it achieves its main objectives of a more secure environment for consumers through strong customer authentication (SCA); and an increase in innovation and competition in the market, mainly through transmission of data via application programming interfaces (APIs).
Importantly, the regulatory authorities have signalled that they are willing to give extra time for the directive to bed in. This is because PSD2 has faced widespread pushback in the final stretch of implementation. The card industry, e-commerce merchants and third party providers (TPPs) have voiced concerns over the blanket rollout of SCA for online transactions, which they fear will add friction to the customer journey. In the run up to September, they had been lobbying hard for an extension and were relieved when the regulators listened to their concerns.
APIs criticised
In addition, many TPPs have been critical of the quality and maturity of bank APIs, which are also supposed to be in place by September 14. Without a consistent flow of data, many argue that they won’t be able to build business-critical functions. This could put the whole TPP ecosystem at risk if the regulators adhere to a strict deadline, as business models will be under threat.
But despite these teething problems and a slow start by the banks, most market participants agree that this major regulatory push will make for a better, safer and more innovative European payments environment. The pragmatic approach that the European Banking Authority and regulators have taken towards the deadline has allayed the industry’s fear of a cliff edge, and most participants are getting on with implementation.
Already many are looking beyond payments and towards open banking, in the broader sense, which will give customers the ability to see a complete picture of their financial health, including mortgages, investments and other financial products. Whether a PSD3 will be needed to take the European industry to the next level is not yet known – but the debate has already begun.
