Beyond PSD2: what’s next for payments in Europe?
PSD2, the EU Directive that governs EU payment services, was first published in 2015 and came into force in January 2018. It required banks to allow third parties access to consumer bank accounts (with their consent).
In doing so, it supported an alternative way to pay – straight from your bank account instead of using a card, or making a manual bank transfer. Open banking payments have been quietly but rapidly growing in the UK and Europe. You can now top up your bank or investment account with open banking, buy and sell a car with open banking or even pay your tax with open banking (HMRC reported in September that £1bn has been paid this way).
As consumers and businesses move on from the poor experience and high fees of cards, we’ll see open banking payments, or ‘instant bank transfers’ as they’re often called, appearing in more ecommerce checkouts.
PSD2 also brought into existence open banking providers like TrueLayer. We’ve spent the last five years building a network of connections to EU banks and providing payment and data services that make PSD2 a reality. We’re now live with more than 2,000 banks in 17 countries, covering 95%+ of bank accounts in major European markets and 65% of all retail bank users across Europe.
So, what’s next?
At TrueLayer we’re looking beyond PSD2, at how future regulation and industry initiatives can supercharge the adoption of open banking payments. We believe that regulators, banks and the wider industry must now focus on:
increasing coverage of instant payments
eliminating IBAN discrimination, and
collaborating to make open finance a reality.
Instant, cross border payments
PSD2 gave us the ability to initiate payments with any EU bank. Unlike local bank transfer schemes like iDEAL in the Netherlands, which work domestically, open banking payment initiation can be truly pan-European.
But to ensure mainstream adoption, we need to address two blockers:
Coverage of instant payments
At the moment, two thirds of banks are reachable for instant payments. But that leaves one third which aren't (eg none of the major Irish banks process SEPA Instant). Payment initiation works best when it is used for instant transfers – as we’ve seen in the UK, where open banking payments have grown five-fold in the last year.
IBAN discrimination is where an employer or company refuses to accept your SEPA IBAN for euro payments or Direct Debits. This isn’t just an issue facing consumers paying for utilities cross-border. Some banks make it more difficult for consumers to use third parties to initiate cross-border payments, than if the consumer were making the same payment directly. Some banks make it more difficult to pay cross border full stop. This frustrates the principles of PSD2 and the Single Payment Euro Area (SEPA).
The EU Financial Services Commissioner, Mairead McGuinness, targeted these very same issues in her recent speech.
Here at TrueLayer, we strongly support the use of legislation to speed up instant payment adoption across the EU, and the introduction of strong measures to combat IBAN discrimination in all its forms.
PSD2 created a precedent by giving consumers the right to access their payment accounts via third parties. But the scope of what consumers can use third parties to do has limitations.
For example, at the moment:
third parties can only access current accounts (and in some EU member states credit card accounts)
consumers can only initiate single payments – each one requiring separate authentication with the bank.
The European Commission has recognised the potential of data sharing that is broader than PSD2. It announced its intention to adopt a legislative proposal for a new open finance framework by mid-2022. Noting that “access to more customer data would also enable service providers to offer more personalised services that are better tailored to customers’ specific needs”.
At TrueLayer, we're excited by the possibilities that will emerge to develop our products under this new open finance framework.
On the payments side, a new scheme is being developed under the European Payments Council to enhance the payment functionality available to third parties.
We're delighted to be participating in a new working group, which is looking at payment capabilities the scheme could facilitate, such as recurring payments. This will level the playing field in the provision of EU payment services.
European Payments Initiative
The European Payments Initiative (EPI) is a collaboration between 31 EU banks to create a new European interbank network that could rival Visa and Mastercard.
At TrueLayer, we support all efforts to increase payment competition and innovation for the benefit of consumers. We hope the creation of EPI will have a positive impact on the development of EU payments infrastructure. The EPI should be designed to be compatible with the open access principles of PSD2, in order to support a rich ecosystem of payment providers and maximum choice for consumers.
An exciting blend of industry collaboration and regulatory intervention is emerging which promises to make 2022 a pivotal year for open finance.
We look forward to working with banks as partners to develop new payment functionalities, while feeding back to authorities on the gaps that can be addressed by regulation.