This is the end, my friend

The legislative process for the second iteration of the European Directive on Payment Services, or PSD2 as it is better known has been so many years in the pipeline that as it draws to a close and we have the (likely) final text it’s like a friend has passed away. With the European Council compromise text now published (here) we can finally see what all of the machinations have bought us and confirm our best and worst fears.

And to be honest it’s a real mixed bag. Most of the headline stories are revolving around Article 29a – or the right of regulated third party payment companies to have unfettered access to current accounts held by banks, commonly known as XS2A. And of course, this throws up huge technological problems for banks and a pressing need for them to upgrade old and creaking payment systems – or introduce smart middleware as a buffer between legacy and the outside world. However, while this is a big deal, I personally don’t believe that this is the biggest news in PSD2, merely a sideshow to some otherwise interesting legislation.

Take, for example, Article 2, which defines the scope of applicability of PSD2. PSD1 was all about Euro transactions in the Eurozone. This sucker has gone global – if your payment begins or ends in Europe, regardless of currency, then you better make sure that you read this document carefully as there’s a whole lot that you now need to adhere to.

Article 14 outlines the role of the new task master, the European Banking Authority (or EBA – which was set up by the EC under Directive 1093/2010 is not to be confused with the other EBA which gave us STEP2 and MyBank). EBA’s powers are greatly increased and the reporting burden towards EBA will be a significant headache for most banks. Included is the power for EBA to create their own regulatory technical standards which can then be imposed on licensed institutions – a potential move away from the self-governing standards developed by the bank-owned EPC. EBA also becomes the default organisation with which you need to approve use of any loopholes you find in the Directive – basically if you think you’ve found a hole, they can tell you if you have or haven’t.

Member States are urged to remove the ability for merchants to surcharge for instruments where interchange is regulated – which now essentially means SEPA instruments and cards. This should have a big impact on consumers but could also lead to lots of small merchants grappling with whether to continue accepting cards – and lots of large merchants shopping around for better Merchant Service Charge (MSC) percentages. I’d expect more consolidation in the Payment Acquiring business as a result of this.

Article 10, paragraph 3 is perhaps my favourite (if you can have one) in the document as it forces Payment Institutions to do at least some business in the place that they choose to be regulated, and to have a proper office there. How much this will do to the economy of Gibraltar, Isle of Man, Malta and Cyprus I’m not sure, but keep an eye out for changes…

And finally, Article 17 paragraph 4 creates a new business line with Payment Institutions now able to offer limited credit facilities – so perhaps some of those prepaid card businesses will begin to transform. Or perhaps iDEAL and MyBank will now get to offer new services to their clients. One thing is for sure, where there’s change, there’s business to be done and while XS2A will continue stealing headlines because of the costs it creates, other parts of the PSD2 open opportunities and the chance to make some of that money back.

So this is the end of PSD2 as a process, now comes our new friend, putting PSD2 into action!

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