# Ready for the new EU payments value chain?
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2016-08-23
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: 4 Ways PSD2 Sparks Innovation and Growth in Banking
Meta Description: Discover how PSD2 is transforming the payment landscape, creating opportunities for new entrants and improving consumer options. Learn more here!
URL: https://financedigest.com/ready-for-the-new-eu-payments-value-chainhtml

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‘ **By Bruno Cambounet, VP Banking and Financial Services at** **[Axway](http://www.axway.com/)‘**

_4 ways PSD2 can generate innovation, healthy ‘co-opetition’ and growth_

In 2007, the Payment Services Directive (PSD) established the legal foundation for an EU-wide single market for payments. The comprehensive set of rules was designed to make cross-border payments as easy, efficient and secure as payments within an EU member state. The ultimate goal of the PSD was to foster [competition by opening up payment markets](https://www.financedigest.com/metal-bellows-market-competitive-growth-strategies-based-on-type-applications-end-user-and-region28925.html "Metal Bellows Market Competitive Growth Strategies Based on Type, Applications, End User and Region") to new entrants, in turn creating more convenient, cost-effective and secure payment options for consumers.

As expected, the PSD created a unified way to make [credit transfers across the Single Euro](https://www.financedigest.com/sp-global-fined-1-1-million-euros-for-premature-credit-rating-publications.html "S&P Global fined 1.1 million euros for premature credit rating publications") Payments Area (SEPA) at almost no cost to the corporates. Recognising immense opportunity in the new payments value chain, digital-native Fintechs and non-banking institutions quickly emerged to offer non-traditional — and unregulated — [digital payment](https://www.financedigest.com/digital-payment-tools-the-new-normal-for-charity-fundraising.html "Digital payment tools: the new normal for charity fundraising?") initiation and aggregated accounts information services, such as personal finance management, directly to end users.

These [service providers](https://www.financedigest.com/high-energy-shockwave-therapy-units-market-end-user-demand-by-types-regions-top-players-service-provides-regional-outlook-and-forecast-to-2028.html "High Energy Shockwave Therapy Units Market End-User Demand by Types, Regions, Top Players, Service Provides, Regional Outlook and Forecast to 2028") brought innovation and competition, providing more, and often cheaper, alternatives for digital payments. But they also introduced more risk at the consumer level, making it clear they should not [remain unregulated](https://www.financedigest.com/unregulated-investment-schemes-remain-a-threat-to-investors.html "Unregulated Investment Schemes Remain a Threat to Investors"). To improve transparency and security in the single market and to create a more level playing field, the PSD was expanded to include third-party providers (TPPs) on [top of the Payment](https://www.financedigest.com/top-5-payment-trends-for-2016.html "TOP 5 PAYMENT TRENDS FOR 2016") Service Providers (PSPs) already introduced in the first release of the PSD.

The revised directive, PSD2, was formally adopted by the EU Council of Ministers in December 2015 (Directive 2015/23661 ) with a transposition deadline for all EU countries of January 2018.

**Increased competition from new players — the [Third Party](https://www.financedigest.com/why-a-replacement-to-third-party-cookies-is-key-to-post-pandemic-recovery.html "Why a replacement to third party cookies is key to post-pandemic recovery") Providers(TPPs)**

PSD2 is intended to improve consumer protection, promote the development and use of innovative online and mobile payments, and ensure secure and open access to customer accounts — all very good for new entrants and [end users](https://www.financedigest.com/industrial-magnetrons-market-competitive-growth-strategies-based-on-type-applications-end-user-and-region.html "Industrial Magnetrons Market Competitive Growth Strategies Based on Type, Applications, End User and Region") of payment services. But what will these outcomes mean, in practical terms, for banks and other financial services institutions who now find themselves in [uncharted digital territory](https://www.financedigest.com/climate-impacts-heading-to-uncharted-territories-of-destruction-un-chief.html "Climate impacts heading to ‘uncharted territories of destruction’ -UN chief")?

A major component of PSD2 is Open Access to Customer Accounts (XS2A), which requires banks and other institutions to [share payment account](https://www.financedigest.com/the-sharing-economy-whats-in-it-for-accountants.html "THE SHARING ECONOMY: WHAT’S IN IT FOR ACCOUNTANTS?") information with TPPs via open APIs. XS2A removes barriers to entry for new retail and Fintech players, clearing the way for them to create payment and information services that link directly to [customer](https://www.financedigest.com/improving-customer-experience-and-profits-with-embedded-payments.html "Improving customer experience and profits with embedded payments") payment accounts.

TPPs include Payment Initiation Service Providers (PISPs), such as Sofort in Germany, IDeal in the Netherlands and Trustly in Sweden, and Account Information Service Providers (AISPs) that aggregate [customer information from multiple accounts and make it accessible from a single](https://www.financedigest.com/insurance-marketing-is-more-targeted-with-the-single-customer-view.html "Insurance marketing is more targeted with the single customer view") portal.

- PISPs: XS2A will cut out the “middleman” in electronic payments by allowing merchants to use a customer’s [account details to initiate a payment directly from the bank](https://www.financedigest.com/scams-avoided-how-to-prevent-bank-account-scams-in-2023.html "Scams Avoided: How to Prevent Bank Account Scams in 2023"). From the customer standpoint, this puts the shop, [mobile app or online service](https://www.financedigest.com/rebound-in-the-oil-gas-exploration-and-production-activities-to-boost-mobile-servicing-rig-market-fact-mr-report.html "Rebound In the Oil & Gas Exploration and Production Activities to Boost Mobile Servicing Rig Market, Fact.MR Report") at the forefront of the transaction, relegating the bank to the role of invisible PSP.
- AISPs: XS2A will enable consolidation of information from multiple accounts and multiple banks, giving consumers real-time visibility into [cash flow](https://www.financedigest.com/xerox-shares-slide-as-annual-revenue-cash-flow-forecasts-take-a-hit.html "Xerox shares slide as annual revenue, cash flow forecasts take a hit") and payment transactions in one place. This will give AISPs access to a data goldmine for cross-selling and personalisation of [offers that threaten to undermine the bank’s customer](https://www.financedigest.com/any-business-can-now-offer-their-customers-financial-services-how-embedded-finance-is-reinventing-the-wheel-when-it-comes-to-banking.html "Any business can now offer their customers financial services: How embedded finance is reinventing the wheel when it comes to banking") relationships.

**Increased technical complexity — and uncertainty**

More regulated SEPA payments, [security requirements and consumer protections add to the complexity of PSD2 compliance](https://www.financedigest.com/managing-compliance-complexity-will-deliver-security-rewards.html "Managing compliance complexity will deliver security rewards"). The EBA’s formal Guidelines and Technical Regulatory Requirements will include strong authentication, authorisation and [identity management](https://www.financedigest.com/how-to-manage-identity-in-a-hybrid-cloud-environment.html "How to manage identity in a hybrid cloud environment") to address security challenges that emerge from XSA2.

Adding uncertainty on top of complexity, the EBA will continue to issue requirements until mid-2017, leaving a very small window of time for [testing and implementation](https://www.financedigest.com/benefits-of-implementing-automated-testing.html "Benefits of Implementing Automated Testing") prior to the January 2018 transposition deadline.

**Stake your claim in the new payments value chain as a [digital banking](https://www.financedigest.com/standard-chartered-rolls-out-digital-bank-in-hot-singapore-market.html "Standard Chartered rolls out digital bank in hot Singapore market") innovator**

At its core, PSD2 is aimed at reducing the cost of [payments to the point that they are a commodity rather than a value-added step in a business](https://www.financedigest.com/building-a-business-case-for-integrated-payments.html "Building a Business Case for Integrated Payments") interaction. Clearly, XS2A will further [disrupt payments](https://www.financedigest.com/unfolding-the-great-payments-disruption-how-consumers-can-navigate-this-new-financial-world-and-how-financial-institutions-can-rise-to-the-challenge.html "Unfolding the Great Payments Disruption – how consumers can navigate this new financial world and how financial institutions can rise to the challenge") markets that have been dominated by banks, cards and cash for decades. So it’s no surprise that incumbent [banks and other institutions might initially see the PSD2 requirement to open](https://www.financedigest.com/isnt-it-time-open-banking-delivered-for-businesses.html "Isn’t It Time Open Banking Delivered for Businesses?") up their internal systems to third-party providers as an unwelcome burden that only creates more competition and less revenue.

But if you think strategically and look a little deeper, you will discover four [ways through which PSD2/XS2A can actually be a blessing in disguise as you prepare](https://www.financedigest.com/six-ways-to-prepare-for-a-personal-finance-crisis.html "Six ways to prepare for a personal finance crisis") to meet the 2018 deadline.

1. **Leverage partner ecosystems using** [secure APIs PSD2/XS2A opens up new opportunities to aggregate services](https://www.financedigest.com/facilitating-open-finance-through-secure-services.html "Facilitating open finance through secure services"), create more distribution channels and share information with partners (who might have otherwise been competitors). By migrating to API-centric partner integration, you can manage and use multiple interaction channels As a result, you can create new revenue streams by using APIs to [securely access partner services](https://www.financedigest.com/how-financial-services-can-secure-data-and-build-trust-in-todays-modern-environment.html "How financial services can secure data and build trust in today’s modern environment"), and vice-versa.

Given that the EBA requirements for [strong authentication will depend on the nature of the transaction and will continue to evolve until late](https://www.financedigest.com/the-late-payments-toolkit-how-to-keep-the-cash-flow-strong.html "THE LATE PAYMENTS TOOLKIT – HOW TO KEEP THE CASH-FLOW STRONG") in the implementation timeline, an agile security implementation strategy, particularly for identity federation, is a must.

2. **Combine existing** [services to create innovative offerings In the new banking](https://www.financedigest.com/the-gmp-cell-banking-service-market.html "The GMP Cell Banking Service Market") landscape, traditional services need to be available, but not in the same old ways. You can use APIs to build digital “mash ups” that combine your existing internal services with TPP services to deliver precisely what your [customers want and need](https://www.financedigest.com/you-dont-need-magic-to-anticipate-your-customers-needs-just-the-right-tech.html "You don’t need magic to anticipate your customers’ needs, just the right tech") at any given moment. By cooperating with the competition and leveraging what you already have to expand your [digital services](https://www.financedigest.com/major-myths-and-questions-holding-banking-and-financial-services-back-from-full-digital-id-adoption.html "Major myths and questions holding banking and financial services back from full digital ID adoption") portfolio, you can stay front-and-centre in the digital economy.

3. **Create the seamless omni-channel** [experience your customers expect Consumers expect real-time](https://www.financedigest.com/how-real-time-data-innovation-is-driving-up-customer-experience-in-fintech.html "How real-time data innovation is driving up customer experience in fintech") engagement and consistent levels of service across all of their physical and virtual interactions. Using APIs, you can ensure that [data and services](https://www.financedigest.com/accelerating-financial-services-innovation-with-the-promise-of-data-mesh.html "Accelerating financial services innovation with the promise of data mesh ") for consumers, partners and field forces are available, consistent and secure across all touch points — mobile, online, call centres, ATMs and branches.

4. **Monetise services with analytics** It takes real-time API usage [data and operational](https://www.financedigest.com/libor-reform-should-trigger-a-major-reassessment-of-corporate-treasuries-data-operations.html "LIBOR reform should trigger a major reassessment of corporate treasuries’ data operations") intelligence to monetise services. With access to detailed analytics that [leverage data](https://www.financedigest.com/how-payment-institutions-can-leverage-data-to-support-merchant-customers.html "How payment institutions can leverage data to support merchant customers") and services from the bank’s entire ecosystem, you can introduce fresh business models with a new approach to business monitoring.

**Conclusion**

To [meet the new PSD2 requirements for open access to customer accounts](https://www.financedigest.com/theres-a-fine-line-between-relinquishing-control-and-accountability-financial-institutions-must-balance-both-to-successfully-cloudify-operations-and-meet-customer-expectations.html "There’s a fine line between relinquishing control and accountability. Financial institutions must balance both to successfully cloudify operations and meet customer expectations") while compensating for lower payment revenues, you will need an agile architecture for integrating payments with other services outside the traditional banking ecosystem.

With the right vision and implementation strategy, the transformation forced by PSD2 can help [traditional banks and other institutions become](https://www.financedigest.com/fiat-republic-the-specialist-baas-platform-that-bridges-the-gap-between-web3-and-traditional-banks-announces-it-has-become-an-electronic-money-institution-emi-in-the-uk.html "Fiat Republic, the specialist BaaS platform that bridges the gap between web3 and traditional banks, announces it has become an Electronic Money Institution (EMI) in the UK.") digital innovators and disruptors themselves, ensuring they will not only remain relevant, but take the lead in the new digital business value chain.


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