Regulating the Payments Ecosystem Transformation
New banks, new payments players, new choice. The competition is heating up in payments, with both incumbents and those new to the scene, vying to emerge victorious.
The Battle for Supremacy
Customers are being provided with ever expanding choice when it comes to their money. And under new regulation, the new players are being granted access to the same arsenal as the incumbents; payment systems and the accounts of the banks’ customers are being opened up to FinTechs, Tech Giants, aggregator services, and more. The responsibilities for key areas such as security, refunds for unauthorised payments, and correct payment execution are devolving across this new ecosystem. For some time, this situation has led to a lack of consistency in the customer offerings. The advent of regulation, including PSD2, is about to change the balance of power.
This competition imperative is part of a complex matrix of change drivers that is transforming the payments landscape globally. Banks, payment systems providers and payment scheme operators are being pushed to offer customers both more choice in payments and more safety, to encourage a diversification of payment types alongside a simplification of infrastructure, and to embrace and open up to new competition while investing in a payments industry fit for the digital world. PSD2 might be the first of its kind, but what we expect to see is other markets following suit. After all, payments aren’t limited to the EU arena; even SMEs operate internationally in today’s eCommerce world, and other market regulation will evolve to reflect that.
¡Hasta la Victoria, Siempre!
This is actually a case of evolution, not revolution – although all players are gunning for victory. Take the expanding choice for customers – this might sound like more confusion for the average consumer. But the move toward unbundled options and the ability to manage your preferred services through aggregate smartphone apps has actually simplified money for the majority, and has opened up new opportunities for established and emerging players alike.
What’s not getting simpler is the number of payment types. Digital payments are no longer limited to cards. Some of the most successful uptake examples of smartphone payments might be linked to card tokenisation, but Person to Person and social payments are gaining traction, where identifiers other than the card number are used to transfer funds. Moreover, we have more non-cash payments being made; wearables and smartphones are lending their weight to the contactless boom, and the Internet of Things is no longer a future challenge for payments – Alexa is here and she is helping you bank. The real-world potential for these kinds of technologies is limited without access to bank account information. However, regulation and tech are converging to make open payments a reality. The creation of a banking Open API standard is an example of this, and how more payments choice can be a reality, without compromising on security.
Power to the People
Despite the digital revolution, moving money around the world is becoming increasingly challenging. If you think about global banking systems and the fast pace at which regulation is changing, this is layering additional complexity onto existing problems, often without addressing the underlying issues. But at the end of the day, ‘people want choice.’ By opening the payments market to greater competition and encouraging further Fintech innovation, consumers win as a result of the market disruption. In the New Payments Ecosystem, the customer has more choice, and more power.
As EU member countries prepare new legislation that will implement the rules of PSD2 into their own national laws over the next six months, the Payment Services Provider landscape will continue to evolve. In the end, open regulation, like PSD2, will be beneficial to both consumers and the payment provider sector, as greater fee transparency, greater FinTech innovation, and market competition become the standard in the EU, and the world.
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