This editorial was first published in our Online Payments and Ecommerce Market Guide launched on 1 November 2017. The guide features several important thought leadership editorials from ecommerce and payments industry professionals, which makes it a top-reference source for anyone involved in the payments ecosystem.
As the Payment Services Directive (PSD2 2018) gradually takes effect, it will bring the biggest changes since the introduction of SEPA. All market participants, from online retailers to providers of payment services and banks, through fintechs, will be affected. The stakeholders are facing several challenges, but will also gain more long-term opportunities by positioning themselves effectively in the payments market.
Greater consumer protection due to the PSD2
The changes that PSD2 will bring to payment transactions within the European market have led legislators to implement a comprehensive new regulation. The increasing volume of payment transactions has coincided with an increase in the security risks of electronic payments. In response to the dominant role played by ecommerce, the PSD2 aims to close the previous regulatory gaps. Two-factor authentication has greatly strengthened the security of online payments. In the future, it will be necessary to fulfil two of the three categories of knowledge, ownership and inherence to prove the identity of the user. These may be passwords, chip cards or fingerprints and iris scans, for example.
In addition to heightened security requirements, the PSD2 also strengthens consumer rights. The future liability limit for incorrect bookings will only be EUR 50. All damage which extends beyond this limit will fall under the remit of the payment service providers and banks. The requirements for online retailers to provide transparent notifications of the transaction fees for the individual payment systems should also contribute to a positive shopping experience. Unpleasant surprises following purchases will, therefore, become a thing of the past.
Attractive payment alternatives for end-customers
The entry into effect of the regulations will increase the complexity of all the payment procedures. The PSD2 is not expected to cause any further hurdles for end-customers. On the contrary, the consumer will be able to choose between attractive alternative methods of payment. A visible difference for the customer is the question of who offers these payment services.
Since the new directive means that the ultimate control over the payment data no longer lies with the established banks, an increasing number of independent payment service providers are entering the market. In the future, the banks will be obliged to provide these third-party service providers with direct access to the customer’s data. The key requirement is the customer agreement: before direct communication with the bank can occur and account data can be accessed, online retailers and service providers will have to obtain authorisation.
The new options for handling payments are likely to result in a postponement of the payment procedures that are offered and chosen. Against a backdrop of lower costs and alternative risk management processes, online transfer and direct debit, for example, will become more attractive for retailers. Rather than incorporating external service providers, it will be possible for the transaction to take place directly. In contrast to the credit card, payment triggering services, such as SOFORT transfer (immediate transfer), are likely to be the winners of the PSD2. If the user-friendly realisation of the security request is not possible, the credit card is likely to become less popular with customers. In contrast, it is to be expected that the payment procedures that gain market share will be those which are unaffected by the regulation and/or a possible fall in user-friendliness.
Consumers are the big winners of the new directive
In addition to the increased consumer protection, end-customers will, in particular, benefit from the increased competition driven by PSD2, which will result in a greater availability of new financial products and services than in recent years. The new data freedom shall enable the individually customised handing of financial offers on both the offer and the customer sides. With the use of scoring, in the future, financial services providers will be able to offer their customers appropriate products such as loans in real time.
However, not every customer will be happy with the prospect of their bank account details no longer being the exclusive domain of the bank that they had previously entrusted with their safekeeping. Responding to these worries will be one of the key challenges for all market participants. Furthermore, customers may not necessarily want to surrender their sovereignty over their data. With the combination of different services, it could become more difficult to maintain a clear overview of who exactly has sent which data and according to what arrangements.
The extent of the changes to the market, following the introduction of the PSD2, can only be guessed. One thing is certain, however: the added requirements caused by the competition and the future of payment will be the same for all providers of payment services and payments institutes. The extent to which the market participants can guarantee the smooth handling of the data and user-friendly authentication procedures and implement customer requirements in the form of new offerings for the market will therefore be of decisive importance to their long term success. In the future, those whose portfolios include convenient and trustworthy financial solutions will play an increasingly bigger role. In this respect, the confidence of the consumers and the handling of their sensitive data will remain the must-have factors for long term success.
About Alexander Rehmann:
As Head of Marketing & Communication, John Alexander Rehmann is a Marketing Strategist with in-depth professional knowledge gained over the course of many years spent working in the banking and financial sector.
About BS PAYONE:
BS PAYONE GmbH is one of the leading omnichannel-payment providers in Europe. In addition to providing customer support to numerous Savings Banks (Sparkasse), the full-service payment service provider also offers cashless payment transaction services to more than 255,000 customers, from stationary trade to the automated and holistic processing of ecommerce and mobile payments.
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