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Expert opinion

PSD2 and eIDAS — The perfect freemium model?

Thursday 8 June 2017 | 10:15 AM CET

Daniel Goldscheider, YES Europe: Banks can compete in quantity while offering a product that is unmatched in quality

A gambit (from ancient Italian gambetto, meaning "to trip") is a chess opening in which a player, more often White, sacrifices material, usually a pawn, with the hope of achieving a resulting advantageous position (1).

On November 16, 2015 the Council of the European Union passed the second payment service directive and gave member states two years to implement it. Despite the fact that a lot has been written about PSD2, many banks still underestimate both the risks and possible rewards associated with it.

PSD2 forces over 4.000 European banks to open their data stores to so called Third Party Players (TPPs) for retrieving account information or initiating payments via APIs called Access to Account (XS2A). Crucially these TPPs need to neither sign a contract nor pay the banks for the privilege. As fintechs and large techs alike are circling, banks large and small need to move fast to decide how to respond to this challenge.

A few early favourites are to:

- do the bare minimum required under PSD2 and make access as difficult as legally possible (which is to say not very difficult under the EBA's Regulatory Technical Standards (RTS))
- talk up Open Banking without a clear strategy how to generate money or gain a tactical advantage.

Neither strategy seems to be up to the task. Margins for payments, already on the way to becoming a commodity, will be under increased pressure; switching cost will be driven down and banks will need to compete (or partner) with tech savvy companies to figure out clever uses of the data trove that will open up.

The answer might lie in another regulation (№ 910/2014) that was passed 16 months before PSD2 and established a set of standards for electronic identification and trust services for electronic transactions in the European Single Market. It is called eIDAS and I am convinced it holds the key for banks to take the bull by the horns rather than bury their head in the sand.

eIDAS oversees electronic identification and trust services for electronic transactions and regulates electronic signatures. It provides the signatory with a vastly higher level of convenience and the recipient with greatly improved conversion rates (meaning fewer lost customers) while offering both increased security. The technology behind eIDAS is no rocket science but, you need verified government IDs as a basis. This will reshuffle the cards and provide banks an opportunity to be in the driver seat rather than run behind trains they may have missed in the past.

GAFA (Google, Apple, Facebook and Amazon) have well over 3 billion customers among them but most of these people self-declared the information they provided so the level of assurance is low. Banks have much higher quality data but even the largest retail banking groups are dwarfed in size by the Internet gorillas. If banks work together on a national or even international level, they can compete in quantity while offering a product that is unmatched in quality.

Giving away basic data for free as the EU demands might prove to be a blessing in disguise as it can serve as a great mousetrap. Banks going beyond PSD2 and offering premium services like identity data and qualified electronic signatures (QES) effectively employ a freemium strategy used by the likes of LinkedIn or the New York Times.

Unlike chess players, financial institutions are forced to play a gambit and sacrifice data. Whether they achieve an advantageous position will be up to each bank.

(1) Edward R. Brace, An Illustrated Dictionary of Chess, Hamlyn, 1979, p. 114.

About Daniel Goldscheider

Mr. Goldscheider is a serial entrepreneur from Austria who has created, lead, advised and invested in companies worldwide in the private equity, mobile, Internet and sustainability space. He is founder and CEO of YES AG.


 About YES Europe

Launching in the second half of 2017 YES is a neutral, branded platform for banks wanting to become leading Identity, Account Information and Payment Initiation Service Providers. The YES impulse Button increases convenience for consumers, conversion for partners and security for both.