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PSD2, the second payment services directive, is a transformative piece of European Union legislation which we’re following very closely at Bayberry.

It has been developed to promote innovation in the banking and payments market by opening the sector up to new entrants and third party service providers. It’s also intended to foster more convenient banking services with increased security to protect customers.

From our research with clients who are trying to guage the impact of PSD2, it’s clear that there are two camps emerging: those who don’t see the full impact and regard it as being a long way off and those who realise its potential for dramatic change.

This split in opinion is nothing new. On an early assignment for the Irish Payments Services Organisation, we helped the Irish banking community to respond to the original New Legal Framework for Payments, a forerunner to the Single Euro Payments Area. Back then, there were those who embraced the change and those who preferred to wait and see. We also saw a similar response during our EMV projects in Europe and the United States.

With each new stage of European payments legislation, Bayberry has helped to build disruptive models that take advantage of changing regulation. Again and again, we’ve seen that those who sought to understand the changes to create new propositions were the ones who emerged as winners.

In the case of PSD2, the opportunity to act is fast approaching. Regulatory technical standards for the open access to accounts and customer authentication aspects of PSD2 will be available in draft form from the European Banking Authority in the coming weeks and are expected to be finalised by the end of the year or early 2017. The transposition of PSD2 into Irish law must be completed by January 2018. 

The extent of the changes that PSD2 will bring are wide and varied. While it may take some time for its impact to hit the mainstream, firms could quickly begin to disintermediate or undermine existing payments models with the tools which PSD2 gives them.

For example, banks and credit unions will be compelled to provide access to their deposit account systems. Open access to accounts means new non-bank organisations can, with the costumer’s authority, access your customer current account data and initiate payments.

The regulation will see a plethora of new parties coming to the payments table such as payment initiator service providers, account information service providers and account servicing payment service providers. These new authorisation categories will allow firms offer varying levels of service to consumers, from account data aggregation to full payment services.

Payment institutions under PSD2 will be regulated to provide payment accounts which can support the delivery of a wide range of services including wallets, budgeting, utility payments, p2p payments and credit faciities. On top of this, e-Money regulation will facilitate micro savings. The net result is that an increasing number of non-banks will be able to provide a much wider range of banking services than ever before.

PSD2 means many firms on the periphery of handling payments may need to be regulated. The good news is that the regulations governing the new authorisation categories for payment services will not be as onerous as those currently attached to a full service payment institution. Indeed, these regulations can be leveraged to deliver new service offerings and commercial value.

The advent of PSD2 means banks who to wish keep customers must prepare themselves for the disruption which is coming down the line and look to change their business models to fit the new mindset. As Giuseppe di Lampedusa put it, “If we want things to stay as they are, things will have to change” and that certainly applies to the banking sector and PSD2.