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There is a widely-held belief in the banking industry that PSD2 access to accounts (XS2A) has to be provided for free. This is not true.
Sure, Europe’s banks must grant customer-permitted Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs) access to their bank accounts and financial data, but crucially, PSD2 says nothing about whether the bank may charge the PISP for these services – it only mandates that PISPs are entitled to the same pricing as the bank’s retail customers.
Many banks are sinking huge sums into their preparation for PSD2 and writing it off as unrecoverable. This is a mistake.
When exposed to the right combination of technologies, PSD2 stops being a compliance headache and transforms into the biggest banking revenue opportunity of the last fifty years.
What’s more, when done right, generating revenue from PSD2 is not just possible; it is easy.
Banks need to focus on one part of the regulation: Article 66.
Article 66.4(c) requires banks not to discriminate against payment orders initiated by PISPs, or in other words, businesses acting (with permission) on behalf of the bank’s customer. Article 66.5 requires that banks provide PISPs with access to payment initiation services without requiring a contractual relationship. So, if the bank usually charges its retail customer for initiating payment orders, it can also charge the PISP.
PSD2 sets a small number of pricing policies (for example, that banks may not charge for fulfilment of their information obligations) but there are no specifications regarding charges that can be levied for different payment types. This means that banks charging PISPs is consistent with current practice, where banks in the U.K. charge customers significant sums for, say, CHAPS payments, but do not charge them for Faster Payments or Bacs payments. Using conventional payment systems, charges are already levied by clearing houses and payment schemes, making the introduction of yet more charges cost-prohibitive for the customer.
But what if the bank introduced a new kind of payment network? One that not only provided instant access to a secure, PSD2-compliant open banking infrastructure, but that enabled the PISP to interface directly with the bank? This would remove the traditional payment schemes, clearing houses and other ‘payment enabling’ third parties from the value chain, wiping the slate clean of their charges and enabling the bank to introduce its own fees for payment initiation services instead.
In this scenario, the bank is in exclusive control of its own digital transaction network, through which it can establish immediate PSD2 compliance, maximise security and, most importantly, generate revenues from PISPs and merchants.
By combining programmable tokenisation technology with public-key cryptography, turnkey open banking software is now available that enables banks to launch a digital payment network designed to establish them as the dominant and controlling force in the transaction chain. PISPs not only use this network to securely access the payment initiation services requested by their shared customer, they also use it to pay the bank’s associated transaction fees.
What’s more, this model reduces transaction costs for merchants, too. Let’s assume the bank charges the merchant 60 basis points for an ecommerce transaction performed using its Token network. On a €100 transaction, the bank would gross €0.60. This is twice the revenue the bank would earn on interchange (30 basis points) from an equivalent credit card transaction at 100 basis points + €0.25. With Token, banks provide merchants a more cost-effective solution than credit cards while still earning more revenue per transaction. Bank revenues go up, merchant costs go down.
This is just one example of how an open banking platform can help banks set the terms for the future of transaction-based digital services. Exactly the same technology can be variously applied within the bank, empowering it to enhance the security, speed, cost and efficiency of a wide range of transaction-based services and functions.
The PSD2 deadline is just seven months away and every European bank is working to open their systems. The big question is this: which banks will use this effort to create new revenue and establish control?
If ever there was an opportunity for digital transformation, surely this is it.