Nadja van der Veer, PaymentCounsel: "PSD2 gives opportunities still to be fully understood"

You spoke at Money 2020 Europe about `Innovation in a Complex Regulatory Environment’. One of the discussions revolved around PSD2 and the opportunities it provides. Can you elaborate on your views?

PSD2 has been attracting quite a lot of attention and there is a lot of discussion on how PSD2 is promoting innovation in the payments space and reducing costs, but even more about enabling new market players` access to the payments space (the so-called TPPs). New players acting as TPPs are given a powerful position (or an equal playing field in the words of the European Commission) with the help of PSD2. For the incumbent market players, the word is that the world is ending with PSD2. Banks will need to invest extensively, while on the other hand their existing revenue streams will be reduced because of the whole new wave of competitors. However, there are many opportunities being created which can and should also be grabbed by existing players. In addition, new services (such as account servicing) could give them even greater benefit to compete even further and beyond their core activity. Think of PSPs (payment service providers) and MAs (merchant acquirers) for example, which see continuous pressure on their turnover due to increasing competition and decreasing margins.

What do you think are the prospects for PSPs and acquirers in the post-PSD2 environment?

PSD2 gives opportunities still to be fully understood for existing market players. Why should PSPs or MAs wait until account servicing providers come knocking? PSPs could strengthen their position with their merchants further by acting as payment initiation or account information providers (TPPs) themselves. The PSP would connect directly with all banks to give merchants full insight into all their bank accounts held. Rather than just be a payment system, a PSP may well become a full-force treasury system, aggregating it with all other bank balances and allowing payments to be made via that interface as well. But with that double role, the full extent of those opportunities is yet to be understood.

I will talk more on this matter at the Pay360 Digital Payments event organized by the Emerging Payments Association on 28 June 2016 in Liverpool.

Then, what opportunity do you see for PSPs in this double role, for instance?

Let´s give a first example. PSPs accessing bank accounts of customers would mean that they could access merchants settlement accounts and reconcile payments directly, right? In theory, would it allow PSPs to directly fund and reconcile – via their account servicing PSP role - on their merchants bank account rather than receive the funds themselves? This would mean that the PSPs would no longer hold funds, carry chargeback and credit risks but be still able to offer a reconciliation (so-called ´full service’). Not only can the access allow PSPs to reconcile, but it would also enable them to acquire insightful data about customers. This not only offers additional cross-selling opportunities, but also tailored propositions based on usage data with great analytical capabilities. The more data a party has, the more it can do for its customers. There is still a great amount of concern about the details of PSD2 and how the new world would look like, but it is worthwhile for PSPs to assess these possibilities!

Let’s take another example. TTPs (the so-called Payment Initiation Service Providers) and merchants will be allowed to ask consumers for permission to use their bank details to initiate payment transactions through a direct connection with the consumer’s bank. Why not have PSPs do this as well? While they are already connecting with various banks on the merchant side, this can be used for the consumer side, as well. Would this not reduce transaction and authorization response times, since not only traditional payment participants like banks, but also merchant acquirers are bypassed? And when they are becoming consumer-facing players, PSPs can consider expanding this and start issuing payment methods. PSD2 gives direct access to payment systems and the issuing PSP will be able to get an understanding of a consumer’s available funds directly. PSPs can compete with the fintech players on a whole new level: an end-to-end service offering for consumers and merchants!

What is the impact of the PSD2 on the compliance department and which risks are involved in granting third-party providers access to accounts?

The biggest impact would be on banks. Banks will need to address privacy concerns and governance model for third-party access. It is uncertain how many APIs there will be. Will there be dozens or thousands to connect to? Banks need to be thoughtful and cautious about who will have access to the accounts and what their rights will be in relation to the account. I`m curious to see how regulators will link data protection compliance to these third-party access to bank accounts. A customer will decide which third party will get what access, but from a formal perspective it is still the bank – as data controller – the entity that grants access to data from their systems. Does that mean that those TPPs are data processors of the bank, with all implications under data protection regulations? What if the bank is based in Europe and the TPP is not? Will the bank need to set a data transfer agreement in place? How can this be done if it has been decided that no contracts with TPP are to be set? All these are very relevant questions that still need to be answered. As said, the reach and implications of PSD2 are still very much unknown.

About Nadja van der Veer

Nadja van der Veer is the Co-Founder of PaymentCounsel. Nadja is a payments lawyer with a decade of in-house experience in the international payments industry and a legal expert in rules and regulations involving financial services/ the EU Payment Service Directive (PSD), compliance, AML and customer due diligence (CDD), card schemes (Visa and MasterCard) and data protection. She provides her clients with solutions which mitigate their compliance risks, without hindering their business growth. Transforming compliance rules into business opportunities is what she lives by.

About PaymentCounsel

PaymentCounsel provides a breadth of services to companies spanning the payments value chain, including: drafting industry standard merchant agreements, analysing risk and global compliance with payment laws and regulations, negotiating payment partnership and vendor relationships and reviewing and negotiating agreements. PaymentCounsel will help impact your speed and competitiveness, accelerate revenue and manage your global risk, while providing a cost-effective solution.