On 13 January 2018, the revised EU Payment Services Directive (PSD2) will come into effect in the European Union and is expected to transform retail payment services. The Directive will enhance competition and facilitate innovation in payment services by opening access to the payment accounts that consumers hold with banks.

"Two new types of payment services will be available to consumers: ‘account information services’ and ‘payment initiation services’. "

The resultant opportunities for firms and consumers are immense, but so are the challenges for regulatory authorities.

Only five weeks remain until the PSD2 goes live and two new types of payment services will be available to consumers: ‘account information services’ and ‘payment initiation services’. These new services will allow firms (other than the customer’s bank) to access payment accounts, provided the customer has given their consent.

In anticipation of these legislative changes, which in the UK have been transposed through the Payment Services Regulations 2017, new service offerings and business models are being developed by firms eager to capitalise on the opportunities. Consumers, in turn, should be able to choose from a greater variety of means to pay for goods and services and from the ability to obtain comprehensive and conveniently accessible information about the status of their accounts, even if held across different banks.

 

Regulatory authorities have been set to task

 

However, the implementation of PSD2 has also brought about formidable challenges for regulatory authorities across the EU, eager to contribute to the success of PSD2.

The European Banking Authority (EBA), for example, has been tasked by the EU Commission, Parliament and Council to support the objectives of the Directive by developing a number of detailed and legally binding requirements, so-called ‘Technical Standards’ and ‘Guidelines’, covering areas as diverse as the security of payments, open account access, authorisation and passporting of payment institutions, cross-border supervision, complaints procedures, and an EBA register containing all payment institutions operating in the EU.

"PSD2 is aimed not only at facilitating competition, but also the strengthening of the security of payments, protecting consumers and creating a single EU market for payments."

The authority, which is based in London and is generally tasked with bringing about regulatory and supervisory convergence across the 28 Member States of the EU, has spent the last two years developing these requirements. The EBA has done so jointly with the national regulatory authorities in the Member States, including the Financial Conduct Authority in the UK.

The challenges the EBA has faced have been formidable because the PSD2 is aimed not only at facilitating competition and innovation but also the strengthening of the security of payments, protecting consumers, promoting customer convenience, and creating a single EU market for payment services. Finally, the EBA also had to retain neutrality between different business models and technologies. Many of these objectives are mutually competing and have pulled the EBA in opposite directions during the development of the requirements, with regard to the level of detail that should be written into the Standards and Guidelines, and the degree of flexibility that firms should be given to comply with them.

 

Consulting stakeholders to reach a compromise

 

The EBA has therefore had to make difficult trade-offs between competing demands, and consulted on them extensively with the industry and other external stakeholders, through discussion papers, consultation papers and public hearings. Having assessed the arguments across the thousands of pages of responses received, the EBA decided to re-calibrate some of the trade-offs it had originally proposed and therefore made dozens of changes before it published the final requirements.

"Having assessed the arguments across the thousands of pages of responses received, the EBA decided to re-calibrate some of the trade-offs it had originally proposed."

This includes some of the key requirements for market challengers to be able, from 13 January 2018, to obtain authorisation, enter the payments market, and passport their services across borders into other Member States. Such is the case for the EBA Guidelines on authorisation and registration; the Guidelines for the calculation of professional indemnity insurance, and the Technical Standards on passporting.

The EBA is confident to have established a regulatory framework that allows all market participants to interact with one another with confidence and is looking forward to payment services to evolve and innovate in the months and years ahead.