PSD2 – the EU directive that changes the financial services market fundamentally

Published October 4, 2018

The banks’ monopoly on customers’ data will vanish with the new Payment Services Directive, PSD2. The market is now opening up to new stakeholders, giving customers more options to choose from. Björn Kjellberg, project manager for EnterCard’s PSD2 initiative, explains how the new directive will influence the financial industry in general.

“We are currently in a process, where we will invite our partners to discuss which functions they consider to be most valuable for their customers. This can open opportunities, where we can create new options suited for their customers,” says Björn.

In accordance with the EU Payment Services Directive, PSD2, the Payment Services Act, was updated on the 1 of May this year. The first step involves updated terms, conditions and security requirements. The technical requirements will come into force in September 2019.

“At a general level, the new directive aims to make things safer and more secure for customers as it requires stronger authentication, when for instance, making online payments. But it also involves market development, besides paving the way for electronic payments and fair competition,” says Björn Kjellberg.

When working with factors affected by the new directive, Björn is making sure, that future scenarios on the market are monitored. This involves, considering potential threats, or how EnterCard is positioned as an important player going forward.

“As this new directive comes into force, it is especially important to devise strategies with regards to how we can stay relevant, grow and create added value for our customers.”


How are the banks preparing for the introduction of the directive?

According to Björn, the banks should primarily make sure they can facilitate open channels, known as APIs (application program interfaces), in respect of third parties.

“In practice, this means that a third party supplier could be allowed to access a customer’s account, as long as the customer has given permission and the third party has the required certificates. They can then use the bank’s infrastructure as a platform for financial services. The question all stakeholders should be asking themselves, is how they can realise the opportunities presented by this.”


What does the new directive involve?

The new Payment Services Directive is at least, extensive. As PSD2 paves the way for new stakeholders, we can also expect changed customer expectations. However, according to Björn, it will still be some time before the open channels becomes reality, and in the meantime, customers will not experience much difference. At present, banks are focusing primarily on making themselves ready to cope with the regulatory requirements of PSD2, while making plans for the possibly commercial implications of the regulations. In the future, we expect that online traders will offer their customers payment initiation via third party stakeholders, which can access the customer’s account directly without the need of going through a payment network such as Visa, MasterCard or Amex.

Payments will be more integrated in each moment of purchase, facilitating purchasing experience for customers. They will not need to use card details, but will be able to provide direct access to their accounts or other payment methods via a Bank ID.

“If payment is not made via Visa, MasterCard or Amex, this will also reduce costs for shops when transactions are made. Hopefully, this will also result in reduced prices for customers.”


Increased competition for customer data

When the new directive comes into force, considerably more market data, will be open other stakeholders, which can be used to create strong customer experiences. Companies will have greater insight into their customers, as long as they get customers consent. In this regard, it is up to both banks and other stakeholders to offer the best services and the right offerings based on customers’ buying patterns and customer profiles.

“In the long run, this means, that customer offerings will be more relevant and tailored to their needs. More companies will compete to get customers’ attention. The large number of potential options may perhaps seem tricky for customers to navigate through, but in the long run this will lead to a ‘cleaner’ customer experience. Stakeholders managing to offer the best customer experiences and interfaces will win the battle,” says Björn.

“One element of this shift is that customers will be less loyal to their banks,” Björn concludes. They will have the opportunity to explore and choose the offerings best suited, and this will not necessarily be the offerings provided by a single stakeholder.”