In the early 2000s, changes in payments were happening everywhere in Europe, but banks were slow to adopt them.
“Some of the non-bank players were coming up with solutions that were good for consumers, but the banks were slower to bring these solutions to market,” says Neil Burton, Chief Administrative Officer of Verifone Europe.
But this all changed in 2007 when the European Union issued the Payment Services Directive (PSD), which held third-party payment facilitators to the same standards as banks. After the directive, these third parties, such as PayPal and Western Union, became Authorized Payment Institutions (APIs), and the banks were more compelled to work with them now that everyone complied with the same rules and regulations.
Innovations like greater convenience and cheaper peer-to-peer payments had existed for a while, but after PSD, the banks had good reason to start bringing these innovations to their customers.
Now, it appears the EU is about to shake up the market once again. PSD2, set to be enforced in 2018, aims to extend the themes of PSD. With a customer’s consent, PSD2 allows non-banks to access their account information and facilitate payments.
AISP: account information service provider
PISP: payment initiation service provider
These are the two new industries the directive is trying to foster. For AISPs, like Mint, PSD2 allows for secure access to a customer’s account. And for PISPs, PSD2 shortens the value chain; PISPs will be able to make bank-account-to-bank-account payments—something previously reserved only for banks. To make this possible, however, banks need to alter their digital infrastructure to allow easier communication with third parties.
The directive will also require that all payments operators and banks comply with multi-factor authentication (MFA) to maintain high standards of security for anyone wanting to get into the payments game.
With these changes, it can be difficult to predict what kind of payment model will take market share, but there are already a few contenders. Instant payments, a model that allows for instant credit transfers, is already sweeping through much of Europe. There have also been a few commercially successful, bank-led initiatives such as MobilePay in Denmark and Vipps in Norway. Although some predictors are saying that alternative payment methods like instant payments may take some market share away from cash and card payments in the next five years, the 2017 World Payments Report stated that credit cards grew globally in 2015 by 10%, and debit cards accounted for the highest share (46.7%) that same year. In essence, the ramifications of PSD2 will more likely be a broadening of the payments industry, rather than one new solution usurping another. The whole purpose of PSD2 is to foster more competition and greater innovation in the payments space—not herd consumers into picking one option.
So, where is Verifone amidst all this opportunity? We’ve met our PSD2 requirements for the 2018 deadline and are currently assessing the options.
“History shows that if you want to get anywhere in payments, you need to get to scale, and in order to get to scale, you need the proper security, infrastructure, and resilience—all things Verifone has in abundance.” says Burton. Verifone will continue to work on the foundation of coexistence for multiple payment models—allowing the customer the choice to pay however they’d like.
Verifone has always been an advocate for diversification and innovation in the payments space, and so, for us, PSD2 is more than welcomed.
