Consumers should pay less for payment services and have more confidence that their personal and banking data is being kept safe when the payments industry becomes more competitive in the new year.

The implementation of the Payment Service Directive (PSD2) on January 13 is a bold attempt by the EU to open up the European banking market and ensure new entrants – including fintech firms – can compete equally with traditional players such as banks, building societies and other payment institutions.


Financial Conduct Authority support


The UK’s financial regulator, the Financial Conduct Authority (FCA), which watches over 56,000 firms and markets, is convinced that consumers, businesses and the industry will gain from the change which is a giant step towards creating a digital single market for payments across Europe.

"People will still keep their cash securely in a bank, but PSD2 ends the banks’ monopoly on services and customer data."

People will still keep their cash securely in a bank but PSD2 ends the banks’ monopoly on services and customer data. Consumers will be able to pay bills, transfer money, and keep track of their spending using their social media accounts and specialist apps.

New finance companies will be able to ask banks for customer account details through open Application Program Interfaces (APIs). These APIs could integrate software from different firms and may encourage more collaboration within the industry to save time and money.

“PSD2 should lead to increased innovation and choice for consumers who will be able to aggregate all their accounts in one place and make online payments without using a credit or debit card and compare products and services more easily,” says the FCA’s Executive Director of Strategy and Competition, Christopher Woolard. “The revised directive allows for the easier exchange of data and better security from new requirements for all providers. It should also drive down the overall costs for payment services.”

The FCA expects PSD2 to be maintained in UK law when the country leaves the EU in March 2019 because there is considerable UK support for opening up the payments market.


Demand is there and will grow


In recent years, more consumers have wanted to have relationships with different account providers including banks, fintech firms and telecoms giants.

“About 2 million people in the UK already use different payment services that rely on access to data, and others will follow soon as awareness of these services grows”.

Woolard says, “About two million people in the UK are already using different payment services that rely on access to data and others will follow during 2018 as awareness of these services grows”.

The different providers are already reacting to the rapid growth in ecommerce and mobile banking and, following the introduction of PSD2, they will be keen to woo new customers and encourage them to share their data.

“We don’t expect things to change drastically overnight, but people who like the convenience of using one bank will also like the accessibility of being able to use different services from different companies through one webpage or app,” says Woolard. “Some high street banks will also offer these new services and this will improve transparency and customer service and also build trust.”


Industry is ready and pro-active


The FCA says the finance industry is prepared for the January 13 deadline.

Since October the regulator has been taking applications from new firms entering the market and re-registering and re-authorising existing payment and e-money institutions.

"PSD2 is a significant evolution of existing regulation for the payments industry."

“PSD2 is a significant evolution of existing regulation for the payments industry. Firms have had to make sure they know what’s required of them and be ready for the new regime,” says Woolard. “The industry can see the long-term benefits and firms are busy finalising how the architecture for open banking will work between them.”

PSD2 also introduces a number of new requirements around how firms treat their customers and handle complaints as well as which data they must report to the FCA.

The FCA is working with the industry to help explain the changes to customers and to inform them that under the new rules they will have more choice but they should know their rights when using these services.

“We will continue to monitor closely whether competition in the market improves in the interests of consumers,” says Woolard.