The payment industry is waiting to see the impact of the Second Payment Services Directive (PSD2) and how it will change and improve the European banking sector.
PSD2 is intended to reform every area of the payments industry from online payments to the amount of access merchants have to a customer’s financial data.
What exactly will PSD2 change?
The biggest change in the payment industry will be breaking the monopoly that banks now hold over customers’ data.
Following the implementation of PSD2 merchants will be able to access your account date from your bank (with your approval of course). In practice this means that online purchases will be possible without redirecting you to payment service (e.g. Visa or Paypal).
During an online purchase a third party will be able to make the payment directly without redirecting the buyer to another service (like Visa or PayPal).
The directive will also require pricing methods for international payments to be completely transparent. At present it is possible for brokers and banks to add hidden costs by using low exchange rates, much lower than rates seen on Google. At the moment clients see the upfront fees – either as a percentage of the sum being transferred or as a fixed fee. This means that the customer will discover additional fees being charged when the exchange rate used is not the one they expected. With the implementation of PSD2 customers will be able to see the real cost and charges of their international money transfers.
The Technical side of PSD2
After PSD2 comes into play we can expect standardization of how banks share customer data with approved third parties. This is an essential move which has been welcomed by all. At present the non-standardization of data sharing often leads to complications and problems with international payments. Different banks have different requirements, procedures vary and customers are asked to supply different data. Following the implementation of PSD2 standardization in the payment industry will greatly improve the customer experience across the globe.
How PSD2 will Affect Banks
Many of the changes brought by PSD2 will be beneficial to the customer however the bottom line is that it will be up to financial institutions to implement these changes. Banking systems are complex involving multiple third party integrations and implementing the necessary PSD2 changes is not going to be easy. Hopefully FinTech companies and banks have already started making plans for these changes while PSD2 has been in the formulation stages so that they are ready to meet the directive requirements when PSD2 is introduced. As the financial industry prepares for PSD2 FinTech companies are, as ever in the forefront of change ready to meet the challenge.
In conclusion, 2018 will be a groundbreaking year for retail banking as the EU and EEA put PSD2 into effect. EU member states will be required to include PSD2 in their national regulations by 13 January 2018.
The Second Payment Service Directive extends the legal framework of the original PSD. PSD2 takes into account the emersion of payment-related FinTech companies and is intended to level the playing field between all payment service providers while still maintaining stringent security and enhanced customer protection.
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