The PSD2 directive has been delayed, but will we be ready for it despite the extra time allowed? Will businesses be prepared? Are consumers even aware? And how will it affect us all?
The second Payment Service Directive has been put forward by the European Union to help control and regulate the emerging payment services, such as digital challenger banks, smart payment apps, and potentially the cryptocurrency ecosystem in a manner consistent with traditional models. The idea is to make payments more secure, help to keep prices down and to create a system of governance for the new tech-based methods, without the risk of deterring innovation or startups.
The directive now comes into force on March 14, 2021. It’s arguably a good idea. On the surface, anything compulsory that requires investment can feel like a bad thing for business. And with PSD2, one of the major negatives is that because of this, most businesses are not yet ready for the change. Why? Sure, there will be cases of "why do today what you can put off until tomorrow?" But it’s also because it involves a huge amount of work. And coming hot on the tail of GDPR, which required a whole different set of preparation, businesses — particularly smaller operations — simply haven’t had the wherewithal to implement the changes necessary to keep up with the new regulations.
So, while your village corner shop probably won’t suffer immediately for not having the means to function within the PSD2 framework, they will eventually. And larger companies will feel the pressure sooner, as transactions are declined and greater pressure on alternative payment methods comes into play.
However, in the longer term, a safer, more secure framework is being put into place. The breadth of the potential of new payment methods — for both customers and businesses — is being highlighted. The limitations of the 30-year-old, pre-internet card system also is exposed. So, the argument here really can’t be that PSD2 is a bad thing. Simply that the enforcement of a hard break could be untenable. And perhaps more European countries should get behind the FCA's decision to postpone SCA (strong customer authentication) integration as part of PSD2, with a view to the gradual implementation over time.
Thus far PSD2 may well have escaped the typical consumer’s notice. But it could eventually impact upon purchasing experiences. It’s estimated that as many as 40% of transactions could be declined in the initiation period. This and other changes could well cause friction for consumers. So, is it going to be a worthwhile change for them?
When taken alone, maybe not. But as smart banking becomes integrated into the traditional banking framework, it could deliver the best of both worlds: the flexibility of the emerging technology, with the security and stringent regulations of the established system. But this will only be perceived as beneficial with hindsight if the implementation can be gently phased, avoiding the potential disruption of a hard break, something the extra 18 months might help us achieve.
Whether customers ultimately come on board with PSD2 and smart banking remains to be seen. And the ease of implementation will undoubtedly influence that. But I am of the opinion that as great products and services grow, the general standard of banking interfaces will need to rise to meet them. That means open data and APIs will have made life better for everyone and from a customer’s perspective, that's a positive.
