On January 13th, 2018 the Payment Services Directive 2 (PSD2) becomes national law across the EU.
Depending on whom you ask – and to a large degree what their vested interests are – PSD2 will either have little effect, or be a FinTech game changer that will kill banking as we know it.
From the bank’s perspective, they clearly don’t want change. They have been front and centre for generations when it comes to consumer interaction, and the data they have collected is a major source of their power. Start-ups on the other hand, need a way in, and access to that data is a very good place to start. Whoever controls the consumer directly, will have the best chance of controlling the consumer’s financial choices.
PSD2 itself is supposed to promote 2 things:
- Make it easier and safer to use internet payment services by better protecting consumers against fraud, abuse, and payment problems as well as strengthen consumer rights; and
- Promote innovative mobile and internet payment services. [competition in other words].
The first applies no matter who you are, bank, service provider, or merchant. Combine this with General Data Protection Regulation (GDPR) and everyone needs to protect personal data.
The second however, is supposed to create a so-called ‘level playing field’, but can start-ups truly compete against the big banks who already have the direct consumer relationship?
Innovation is not the problem, FinTech is busting at the seams with new ideas, but none of them mean much unless they are adopted by the masses. What do they have to do to displace a bank, when the chances are they will not actually be providing banking services as we understand them? And what exactly are “innovative mobile and internet payment services” in this context – and to the point of this blog [finally] – how are mobile devices going to make all the difference?
Counterintuitively, mobile phones will actually improve security. You only have to look at the sheer number of each authentication factor of which the modern smartphone is capable to realise that traditional banking apps just don’t cut it. From passwords / passphrases, to fingerprints, to geo-fencing, to whatever comes next, your phone gets as close to true identity management as any device can.
That’s not to say mobile phones are secure, they are not, and this is one of the biggest hurdles to overcome. A bad guy ‘hacking’ into one of your banks accounts is bad enough, now imagine them hacking into an app that controls access to all of your finances. Money management apps is one of the greatest potential benefits of PSD2, and one of its scariest.
As for how mobile devices will aid PSD2 adoption, you only have to look at the trends. According to Statista for the UK:
- By the end of 2017 66% of the UK’s population will be using a smartphone – That’s 43 million people, and given the demographic, they control the lion’s share of the UK’s wealth.
- In 2015, 58% of all smartphone owners used banking apps
It follows therefore that a good chunk of that 43 million will be using their devices for a lot more than Facebook.
The only statistic that does not back this up, is adoption of mobile payments. Despite the Apple Pays/ Samsung Pays, and the plethora of digital wallets, mobile payments have in no way realised their potential. This is not the fault of the smartphone, this has to do with the inability of the payment apps to provide any sort of value-add. From loyalty point, to instant coupons, to ratings and reviews, payment apps are not improving the BUYING experience, just adding a payment option.
PSD2 will change all of that. When you have an app that can not only help you find the best price for something, but give you the best purchase choices based on your combined financial history, now you’re providing true benefit. It’s not about how you pay, it’s about how you buy.
Yes, you can do all of this through a PC / laptop, but on what device do you spend the majority of your time online?
[If you liked this article, please share! Want more like it, subscribe!]