How fintech deals are reshaping financial services | Lexology

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As fintech takes a prominent role in the financial services industry, major institutions are looking to capitalise on innovation by working with the most ambitious and brightest startups.

In much the same way that digitalisation and the increasing use of smartphones have disrupted the transport and consumer sectors, with companies such as Uber and Airbnb demonstrating that technology can open up markets in a short period of time with little need for investment in physical assets, fintech has come to the fore in the finance industry.

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How PSD2 and Open Banking Will Affect You

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The Second Payment Services Directive or PSD2 comes into effect January 13, 2018. This open banking initiative will no doubt be a game changer in Europe and really for any retail bank or fintech that wishes to work with Europe. Today we’ll give you an overview of what exactly PSD2 is. Then we’ll offer you the most up-to-date information coming straight from the banking and API specialists who shared the next steps of this often mysterious initiative at this year’s APIdays in world financial capital London.

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Firms likely to pre-empt PSD2 to seek market-leading positions in payment initiation services, says new report

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Banks could face competition from mobile wallet (m-wallet) providers, technology companies, financial technology (fintech) providers and major retailers in the new market for payment initiation services, according to a new report.  A new market for payment initiation services is set to stem from the introduction of reformed EU laws on payment services, PSD2, which was finalised earlier this year and must be written into national laws across EU countries by 13 January 2018.

Under PSD2 banks and other payment service providers (PSPs) must give so-called payment initiation service providers (PISPs) access to their customers’ accounts so as to facilitate transactions ordered at the customers’ request. However, in return, PISPs must observe a number of data security obligations and takes on certain liabilities in relation to any unauthorised transactions it is responsible for.

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Visa criticises regulator’s plans for customer authentication under PSD2

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‘One-click’ online payments and other mechanisms for making speedy transactions will be prohibited if proposals outlined by the European Banking Authority (EBA) are introduced, Visa has said. 

The payment provider said the regulator’s draft standard on strong customer authentication under the reformed Payment Services Directive (PSD2) could, if confirmed, cause “inconvenience … with no benefits for consumers” and is “a significant threat to future innovation and Europe’s future growth”.

The EBA is responsible for defining the regulatory technical standards for strong customer authentication under PSD2. The directive came into force earlier this year and will need to be implemented into national laws across the EU by 13 January 2018. The EBA’s strong customer authentication standard must be finalised by 12 January 2017.

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Collaboration in payments is a must for established players to secure transactions

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The payments landscape is rapidly transforming, forcing long-established providers to take a hard look at how they can adapt their business model to meet new challenges, such as regulation and demand for speed, transparency and efficiency.
Collaboration in payments is a must for established players to secure transactions. The fact remains, however, that transactions are owned by the banks – a consequence of their long history, scale and degree of governmental protection that helps preserve their status as ‘keepers’ of transaction flows. Nevertheless, with cumbersome legacy systems and regulation curbing the pace of change and increasing cost pressures, there is an obvious role for fintech firms to take the lead in innovation and drive forward much needed progress.

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Opening up for better banking

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Regulatory change is coming, geared towards increasing competition and innovation in retail banking. This is good news for customers. In August this year, the Competition and Markets Authority (CMA) released recommendations arising from its investigation into the retail banking sector. Its report concluded that retail banking still isn’t as innovative or competitive as it needs to be. It subsequently issued a provisional order requiring major banks to adopt open application programming interfaces (APIs) and make banking data available to trusted third parties in an easy, safe, and secure way by early 2018. This follows the approval of the Payments Service Directive 2 (PSD2), which will also come into effect from January 2018, by the European Commission last year. While the impact of this latter legislation on UK banks remains unclear while the medium- and long-term ramifications of the recent EU membership referendum are still unknown, it will be applicable to all banks operating in the EU.

Combined, the CMA recommendations and PSD2 will accelerate progress towards “open banking”. But while this has been welcomed by challengers and fintechs that compete with the bigger banks, there is concern amongst established players that these changes could threaten their relationships with their customers. However, if banks get their response right, this regulatory change could be a catalyst for increased loyalty and enhanced connection with their clients.

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PSD2: The European Parliament as a friend of account information & payment initiation service providers | Lexology

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The European Banking Authority (EBA) has published a letter from the European Parliament’s PSD2 negotiating team. The team describes itself as “concerned” about the risk that the EBA’s draft Regulatory Technical Standards (RTS) on “strong customer authentication and … secure communications” will allow the banks to “exclude or limit direct access” by account information and payment initiation service providers (AI&PISPs) to customer payment accounts, using existing online banking facilities.

The negotiating team also criticizes the draft RTS for being “unclear” and “inconsistent with the Level 1 legislation“, before noting that “with regard to contactless payments … a future proof solution is necessary“, and “when defining the thresholds for an exemption, any negative impact on firms should be duly taken into account“.

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Payments International: PSD2 the perennial puzzle » Banking Technology

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The Payment Services Directive (PSD2) still leaves some in the payments industry confused as to where the risks and opportunities lie. This was one of the opinions from Payments International in London – a four-day conference of panel debates, polls and Q&A – that runs 15-18 November. At yesterday’s (16 November) sessions, Banking Technology’s first review examined how banks need to show courage and radically change their traditional mindsets if they are to deal with the threat from start-ups. Also on the same day, one panel debate looked at PSD2. The discussions didn’t throw up anything incredibly new, but the audience polls perhaps show where the fintech industry is and what it comprehends. When asked about what risks and opportunities for PSD2 are understood, 71% said “somewhat understood”. Still some way to go then.

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MEPs concerned that PSD2 plans for account access will hold back innovation

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MEPs have expressed concern that draft standards outlined by the European Banking Authority (EBA) to support innovation in the payments market would be restrictive to new business models.

In August the EBA proposed new regulatory technical standards (RTS) on strong customer authentication as part of its mandate to set such standards under the new Payment Services Directive (PSD2). PSD2 came into force earlier this year and will need to be implemented into national laws across the EU by 13 January 2018. PSD2 generally requires PSPs to apply “strong customer authentication” where organisations or consumers try to access their payment accounts online, initiate an electronic payment transaction or “carries out any action through a remote channel which may imply a risk of payment fraud or other abuses”

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EBA launches PSD2 practitioners’ panel for account-servicing PsPs

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The Euro Banking Association (EBA) is launching a Practitioners’ Panel to foster an exchange on PSD2-related implementation issues at a pan-European level. In his opening words at the Euro Finance Week’s Payments Conference in Frankfurt today, EBA Chairman Wolfgang Ehrmann explained that this new discussion platform will focus on practical questions that account-servicing payment service providers (AS-PSPs) are faced with in their implementation activities for achieving PSD2 compliance.

Wolfgang Ehrmann invited all interested AS-PSPs operating in Europe to participate in the panel, which will hold its first conference call on 29th November 2016. The EBA will serve as a facilitator of this panel.

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