Paperjam, December 2018

PSD2: Are you shifting towards innovative payment models?

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The Directive (EU) 2015/2366 on payment services in the internal market (PSD2) was transposed in Luxembourg by the law of 20 July 2018. In addition to the incremental improvements brought by the PSD2, the Luxembourg banks holding payment accounts are making radical changes in their payment models with the objective to achieve full PSD2 compliance before September 14th, 2019, when the regulatory technical standards (RTS) on strong customer authentication (SCA) and common and secure communication will become applicable.

On the customers’ side, the advantages are significant. The scope of the protection is extended to all payments executed to and from third countries in EU-currencies and in non-EU currencies. Executions are systematically made according to the “same value date” principle, and funds are immediately available even for a transaction with foreign exchange. Fees paid are transparent, maximum liability is reduced, and refund rights are stronger. Furthermore, shorter deadlines for complaint resolution are imposed. For the above set of items, changes are incremental for banks.

The radical changes for the financial ecosystem are due to the new entrants to the market. Startups specialized in APIs (dedicated interfaces), FinTechs and those banks preparing to act as licensed account information service providers (AISPs) and/or payment initiation service providers (PISPs), are the key participants for future developments. Financial Institutions may expect not only to suffer from the new requirements and competition, but also to have to adapt to new revenue models in order to offer similar payment services that FinTech companies offer.

What about exemptions for the contingency mechanism, or fall back, as per the RTS?

With PSD2, bank users can consult their payment account or initiate payments via third-party payment providers (TPPs). After September 2019 and if the dedicated API is not working properly, TPPs may need to access the payment’s accounts via the banks’ traditional online client portal or any other secondary interface made available by the bank. Such situation will not reduce risks nor IT platform’s complexity. The way to avoid this fall back mechanism is to request an exemption in June 2019, whilst following the conditions for the dedicated interface (such as an API):

  • That it complies with all the obligations for dedicated interfaces;
  • That it has been designed and tested to the satisfaction of the TPPs;
  • That it has been widely used in test the last three months (meaning since March 2019) by TPPs, with the purpose of offering account information services and payment initiation services;
  • That any problem related to the dedicated interface can be resolved without undue delay;
  • That an exemption request was sent to the supervisory authorities and that their approval, after review and testing, was received.

Have you considered this important option available for March 2019? It is time to act. The payment world and the customer's relationship with their bank account are in the midst of changing behaviors following the innovative needs of customers who think and live the digital revolution daily.