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2017/03/29 07:00:00 GMT+2

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PSD2: a revolution in the EU, and a potential headache for Switzerland?

PSD2: a revolution in the EU, and a potential headache for Switzerland?

What kind of changes will European banks face with the introduction of PSD2, and how will the Swiss banks be affected?

With round two of the Payment Services Directive, or PSD2 for short, Europe will be rejigging the rules of the game for payment services. As the follow-up to the first Payment Services Directive (2007/64/EG), PSD2 takes into account the technological developments in payment transactions that have unfolded to date, but also the entry of new participants in this market. To put it more specifically, this means that:

  • PSD2 will for the first time govern payment transactions made on the internet or by mobile phone,
  • it lays down stricter security requirements for payment transactions,
  • increases consumer protection through reduced liability in the event of unauthorised payments as well as through an unconditional refund right for direct debits,
  • and opens the market to new payment services providers that are subject to licensing.

The latter in particular has caused quite a stir in the EU banking market.

New payment services providers in Europe

The new payment services providers foreseen under PSD2 are on the one hand payment initiation services providers such as SOFORT, and on the other hand, providers of account information services, for example software for the management of multiple banking relationships. Both depend on receiving access to the necessary account information from the banks. Because PSD2 came into force on 18 January 2016, and must be transposed into national law by 18 January 2018, the preparatory work in the individual member states is already well underway.

The devil in the details

Turf wars between the new joiners and the established banks about the drafting of the concrete technical standards that are to be enacted seem inevitable. PSD2 already contains a number of important guidelines. However, as is often the case, the devil is in the technical details. These details can become a pivotal factor in the economic prospects of the business models of payment initiation services providers.

These details can become a pivotal factor in the economic prospects of the business models of payment initiation services providers

For example, there is currently a battle raging over the question of whether the payment initiation services providers should have direct and full access to electronic bank accounts in the same way a customer does, and in their stead. If so, this could mean that such service providers would also have access to all the bank and securities accounts related to the customer relationship. This is more or less akin to handing a blank cheque to the payment services provider together with the customer’s account statements, which provide information about all the assets held, as well as the entire spectrum of incoming and outgoing payments such as rent and salary. An alternative is that the new payment services providers receive “only” restricted, separate electronic access, enabling them to see limited information, and only allowing them to trigger payments with consent from the bank and/or the customer for each transaction. In this case, the limited information would be, for example, whether there is enough money on the account for the payment in question, and would include an element of control for the customer and/or bank, allowing them to decide whether the payment should be made. It is clear that for the banks, the second solution is more complex from a technical perspective, but it is more secure for the customer. It is also more complex for the payment initiation services providers, which could lead one to ask what in fact is the actual added value of this service.  

Most advantageous for suppliers

In comparison to credit cards, this system provides added value for suppliers, because the supplier receives the payment immediately. In relation to debit cards, however, there is no difference for the supplier, because such payments are also carried out immediately. For customers, using one of the new payment initiation services providers instead of a debit card makes hardly any difference, because both involve a security mechanism, that is to say, inserting a code. However, in addition to their banking relationship, which normally includes the issuance of a debit card, the customer must also establish and maintain another contractual relationship with the payment initiation services provider. Although a highly topical matter in Europe, this fight between the new service providers and the established banks has not yet been settled definitively. The way things are looking at present, and if we leave out the cost-side of the equation (which can be configured in a variety of ways), credit card issuers will face greater competition from the payment initiation services providers than the banks that issue debit cards.

Uniform standards across Europe?

Fundamental to the business model of a new payment services provider is also whether it can access the banks’ accounts by means of a standardised, Europe-wide interface. In this context, it also remains unclear as to exactly which technical standards the banks’ interfaces will be required to meet. The “Berlin Grouphttp://www.berlin-group.org”, a working group for the standardisation and harmonisation of the interoperability of payment transactions, is currently developing pan-European standards for an interface. Under PSD2, this interface must function reliably, be accessible at all times, and must also provide workarounds for non-functioning or overloaded interfaces. A consultation on the draft specification is envisaged for early summer 2017.

A revolution for Switzerland as well?

This is not directly relevant for Switzerland, because as a European directive, PSD2 does not apply, especially not for strictly domestic payments in Swiss currency. PSD2 will expand its area of application within the European Economic Area (EEA), but not beyond. This is also the case for cross-border payments from the EEA to Switzerland and vice versa, irrespective of whether a European currency (euro, pound, krone, etc.) or a non-European currency (franc, dollar, etc.) is involved. For the part of the payment that lies geographically in the EEA, however, European payment transaction providers are subject to PSD2.

PSD2 will expand its area of application within the European Economic Area (EEA), but not beyond.

In this context, it should also be noted that the Single European Payments Area (SEPA) will not be affected by PSD2. Both can exist independently of one another. According to the SEPA rulebooks, the implementation of the PSD2 provisions in SEPA countries is not a prerequisite for participation in SEPA. This is also the reason that neither the authorities nor the Swiss payment transaction services providers see a need to resort to unnecessary activism, never mind introducing regulation in this area.

But because Switzerland is not an isolated island when it comes to payment transactions, it is also clear that the Swiss payment transaction providers will sooner or later be confronted with new payment transaction providers from the EU. Either because they are directly approached by such, because a customer of a Swiss bank would like to use a new payment initiation services offering in Switzerland or abroad, or because a specific supplier now only accepts this type of payment. Closely following the developments of PSD2 in Switzerland, despite its non-applicability, is therefore certainly not a bad idea. 

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