The Retailer Autumn 2017_v1
PSD2: Get ready for the Open Banking revolution
Neil Burton CAO & Head of Change Management Verifone Europe
“PSD2, Open Banking, Instant and new-gen technology will change more than payments; also the shopping experience, both instore and online”
AHEAD OF THE GAME? As is often the case, the Nordics offers some strong pointers. Banks have collaborated (remarkable in its own right) to establish mobile payments schemes; which are remarkably successful. MobilePay, which started in Denmark in 2013, grew to more than 3.6 million users (about half the population) in three years. Norway’s VIPPS and Sweden’s Swish are two other very strong models. VIPPS had one million users within six months of launch and is Norway’s largest payment application. These schemes support bank account to bank account transfers – a different model to the now-familiar use of a smartphone to initiate a card transaction – as well as card-on-file. Because of the strong adoption, retailers need to support those payment modes instore. Retailers are understandably reluctant to place additional technology instore, and providers of their card and contactless acceptance devices have responded by enabling instant payments at the POS. More than 55,000 Danish shops accept payments via MobilePay. Concurrently, those upgrades spawn further innovation; what was once a payment acceptance device now has new roles in onboarding and delivering loyalty, and in enabling upsell and cross-sell. Technology is enabling change to the in-store consumer experience. And experience is where the value lies. At a recent industry event, a senior exec of Saxo Bank 2 , another Danish innovation, used the coffee industry to outline the difference between a commodity and an experience. A bean costs $0.02; fresh ground beans $0.30; a mundanely-presented fresh cup of coffee $2; and a coffee experience, $5. Whilst on-line has changed dramatically, the in-store shopping experience hasn’t, and disruptors are looking to change that. PSD2 and open banking will change consumer expectations, concurrent with a technology refresh in-store. Where older-gen devices’ role was firmly at the checkout, today it’s across the entire store walk. In some models, it may no longer be necessary at the checkout at all. And of course, it must be consistent across marketing and purchasing channels; omnichannel is a prerequisite.
GOOD NEWS ALL ROUND Overall, assuming its potential teething problems are overcome, PSD2 is good news. It should herald an onset of a greater number, and more importantly, greater type of players in the payments ecosystem; and by opening up (properly controlled) access to bank accounts, catalyse innovative products and services. A bigger market with more choice is a good thing, for firms which are able to adapt quickly. Perhaps it will help to drive improved experiences for customers in-store – which, unlike so many other areas, hasn’t changed much recently, and itself is probably ripe for disruption.
A ONCE-IN-A-GENERATION CHANGE IS OPENING A NEW ERA OF PAYMENTS. HERE’S WHAT IT MEANS FOR RETAILERS: Usually we equate disruptors with startups and innovators. PSD2 proves that regulators qualify, too. In January 2018 the Second Payment Services Directive (PSD2) will come into force; altering the retail payments ecosystem. Whilst the impact may initially be small, it is intended to drive a great deal of change. PSD2 mandates Open Banking, opening the door for non-banks to access data held exclusively within banks today, and to provide account-account payments services. There are of course strict safeguards, including customer opt-in. New entrants quite rightly must adhere to bank-like standards, including security and financial propriety. As with the first PSD, already-large companies as well as startups will join the ecosystem. Some may already be retailers. They are expected to bring innovative new approaches and services. In conjunction with Instant Payments – near- immediate account-account transfers, which are today live in many European countries, with a pan-European scheme launching in November – we should expect to see new players touting a new retail payment method for both online and in-store. In PSD2-speak, these are PISPs – payment initiation service providers. For merchants, Instant could be cheaper than card payments, and come with other benefits. According to Accenture 1 , ‘the PISP model presents other benefits to merchants, including the removal of the liquidity risk within the transaction and the potential for faster clearing of funds’. However, few merchants have the purchasing power to cause a change in consumer behaviour, so consumer preferences play a major part. If it’s less convenient, why change. And here another element of PSD2 is unfortunately working in the opposite direction. Secure Customer Authentication enforces multi-factor authentication for many use cases (contactless at the point of sale being a major exception). By seeking to increase consumer protection from fraud, the regulation inadvertently nobbles its market-disruptive ambitions. As a result of a great deal of industry pushback, the Secure Customer Authentication requirements are not yet finalised – which, since their timeframe is different from that of the bulk of PSD2, means they won’t be imposed until after Brexit. In this fast moving world, at least one event horizon is certain.
VERIFONE UK // +44 (0)20 3264 3100 // verifone.co.uk
1. Seizing the Opportunities Unlocked by the EU’s Revised Payment Services Directive, Accenture. 2. Benny Boye Johansen, Senior Director, Head of OpenAPI at Saxo Bank, at FS Club London 12 Oct 2017
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