Payment Services Directive PSD2 and its relevance for Fintechs
Hardly any other change has influenced and changed the financial and banking industry in recent years as much as PSD2. It affects both banks and fintechs. But what is behind PSD2 and how could Fintechs benefit from it in the future?
PSD2 EU initiative to regulate payment services
Anyone who wants to buy a product or service today has an incredible variety of possibilities to compare prices and services. It is easily accessible via the Internet and it does not matter whether the supplier is based in Germany or abroad. However, many people tend to be cautious when dealing with international suppliers, as it is often difficult for consumers to understand how reputable a foreign candidate is. It is only of secondary importance whether it is a financial service or another product. Even low costs are not a decisive factor for many consumers when it comes to buying abroad. Often the decision to buy is made after a detailed comparison, even if the candidate from Germany is more expensive. What is missing is a uniformly regulated financial market with comparable processes and harmonised requirements. A uniform European deposit protection fund is just one example.
EU harmonisation of the payment services market through PSD2
The Europe-wide unified Payment Services Directive (PSD2) is now a step towards a uniformly regulated financial market with comparable processes and harmonised requirements. PSD stands for Payment Services Directive. It aims to harmonise banking and financial services in cross-border payment transactions. This will benefit consumers and businesses. The declared aim is to create a harmonised market for payment services.
PSD2 Fintechs – Increasing competition and consumer protection
In Germany, the PSD2 Directive has been transposed into the Payment Services Supervision Act. It is intended on the one hand to remove barriers to the market entry of new payment service providers such as the Fintechs and to promote innovation, but also to protect consumers. At the same time, harmonised conditions of competition are intended to increase competition between banks and fintechs.
Increased security in online payment transactions is mainly due to the obligation of banks to allow third parties to access customers’ accounts. This enables banks to provide services to their customers with strictly regulated data flows. To ensure this security, payment initiation services and account information services had to be established in the financial landscape. Account information services provide access to customers’ accounts and offer functions such as analysis of spending behaviour or financial management. This will soften the former monopoly of banks, which gave them exclusive access to account information. Payment trigger services, on the other hand, carry out payments of invoices or transfers on behalf of the customer.
How Fintechs benefit from PSD2
For Fintechs, the PSD2 Directive opens up a whole new market. They will become a serious competitor to traditional commercial banks and will be able to provide a wide range of financial services. In particular, simplified payment methods are popular with customers. In addition, customers’ increasing expectations that financial services must be personal, transparent, fast and cheap, covering the whole European Economic Area. Experts assume that the entire value chain in payment transactions will change significantly in the future. Fintechs have the opportunity to start here and offer their customers real added value.
PSD2 data protection regulations – an opportunity for Fintechs
The PSD2 Directive also focuses on improving data protection rules. An online merchant is now obliged to ensure optimised customer authentication in cashless payment transactions. This could make the payment process even longer and more complex for the customer. But this is precisely where Fintechs sees an interesting field of application if the consumer allows access to his account information in order to directly initiate the payment process. In this case the bank is no longer involved at all. For Fintechs in particular, there is still enormous potential in this area, which must be exploited.
Interesting perspectives for Fintechs in the coming years through PSD2
A longer-term perspective for Fintechs in this context could be to apply for its own banking licences. Large corporations such as Google or Amazon are already recognised by many consumers when they offer financial services. It is to be expected that Fintechs with smart solutions will also be accepted by consumers and companies. In any case, the conditions for Fintechs are definitely given. Young start-ups in particular specialise in mobile IT solutions from the financial and banking world. They have gained initial experience with convenient and user-friendly apps that offer an optimised customer experience. Services such as the aggregation of several accounts at different banks or personal asset management are only two variants that are increasingly used by customers. More and more often, Fintech’s clever banking and financial services will be able to offer one-stop shopping and thus become a serious competitor to the traditional banks.