Fred Tyler, VP Partnership & Business Development, Credorax Bank
Europe is undergoing a step change in banking and payment services, leveraging open API technology and new regulatory frameworks to make a historically cumbersome industry more competitive, secure and customer-friendly.
The goal? “Customer first” digital banking and Europe-wide faster payments to drive innovation and increase cross-border trade in a European B2C e-commerce market worth over 425 billion euros.
Much has been written about this phenomenon already, but what about the impact on e-commerce?
It’s not just the existing payment facilitators and payment service providers that will be included in this major regulatory and technology shift. The various e-commerce marketplaces, reseller and aggregator models will be swept up as well. Those that adapt quickly will uniquely positioned to succeed in a new faster-paced, more technology-focused environment.
PSD2 brings Digital Marketplaces into the PF model
The main components driving the change are the European Payment Services Directive (PSD2), which governs European banking, and the SEPA Instant Credit Transfer (SCT Inst) initiative, a scheme of rules and standards being developed by the European Payments Council to enable instant payment transactions. The EU’s Digital Single Market agenda – a proposal to create a single European market for e-commerce – is working to unlock the predominantly domestic markets for online services, to increase beyond 7% the number of small and medium-sized EU businesses selling cross-border today.
Last October, the revised version of the 2009 PSD was adopted in its revised version, PSD2, by the European Parliament. The original PSD created a new type of payment provider: a payment instituition (PI). The PI receives a licence from its domestic regulator to execute payment transactions, provide remittance and other services.
Large-scale European payment faciliators like Square and Shopify already hold a PI licence, and others under the annual revenue threshold obtained exemptions. However, other online business models – including the digital marketplaces, store-within-a-store webshops, resellers, and global enterprises like Amazon, Airbnb and HomeAway that have revolutionized e-commerce – were out of scope under PSD and generally excluded by regulators under a “commercial agent” model.
Nadja van der Veer of PaymentCounsel has done an extensive review of PSD2 that indicates a huge potential impact to the industry. She concludes that the intent of the new regulation is that e-commerce platforms should only be excluded if they do not come into possession of client funds. That’s a big shake-up for any digital marketplaces receiving and sending payments between consumers and small and medium-sized enterprises for goods and services.
Nadja comments, “For licensed payment institutions, including payment facilitators, there are two aspects to PSD2. Firstly, requirements are tightened – passporting rules restricted, more requirements for license application, tightening on exempt operators and the location of domicile country. However, the new TPP payment services framework provides a great opportunity for payment facilitators to strengthen their value proposition through the ability to initiate payments without involvement of payment methods or consumer’s bank accounts.”
More compliance, but even more opportunity
So PSD2 will create a level playing field and bring more players into regulatory scope.
But the opportunity is vast. A new future is opening up: technically agile third parties leveraging a secure open API banking framework that can provide instant authentication and outsourced know-your-customer (KYC) responsibility. And let’s turbocharge that ecosystem with a low-cost, online, pan-European, real-time bank payment network for both credit and debit funds transfers.
Now, that sounds like a real solution to the cost and complexity of managing risk and payments under any marketplace, PF or aggregator model.
The rush is on – for the next breed of platform providers and fintech companies that will build it.