Imagine it is 2007 and your business has just heard that Apple are launching this thing called “The App Store” in the next 12 months. Although Apple themselves are still not entirely certain how it would work, they are convinced that the potential is massive. Would you spare the time to find out more?
Flash forward to 2017 and someone tells you about this new thing that could allow you to know far more about individual consumers and what they spend money on.
As Starbucks, wouldn’t it be brilliant to see where, when and how much you spend at Costa? Armed with this information they could then send you a loyalty card for your local branch that offered you personalised discounts on your favourite coffee.
Impossible? Well actually we just don’t know. But as with Apple in 2007, it may be worth spending time now getting to grips with the EU Payment Services Directive 2 (PSD2) that launches in 2018.
So far PSD2 has not got much attention. If you are not in banking you probably have either not heard of it or brushed it off as yet more banking legislation teeming with acronyms.
The acronyms certainly don’t help, but PSD2 is actually set to revolutionise online payments.
Why? Because it will allow retailers to ask customers for permission to make payments on their behalf by accessing their bank accounts directly through Application Programming Interfaces (APIs), instead of through intermediaries like Paypal or World Pay.
In essence PSD2’s Access to Accounts (XS2A) system is forcing banks to share data that historically only they had access to.
Obviously this kind of direct contact with both customers and financial institutions will be gold dust for retailers.
However, the legislation is also opening the way for a new type of data company – Account Information Service Providers (AISPs). In the US, AISPs such as Mint are already consolidating customer data from multiple different banks and credit card companies to create financial dashboards that provide an overview of all their earnings, expenses and savings.
Comparison websites are already thinking about what this could mean for them. Imagine going onto Comparethemarket.com and pressing a single button that sourced all your financial history directly in order to select the best credit card.
Clearly this is not great news for banks, not only because of the loss of a revenue stream and the introduction of new competition, but also due to the financial implications of setting up the required digital capability. With their traditional monopoly on financial data now under threat banks will have to adapt to a new competitive space.
But they will not be the only ones. Businesses need to start thinking now about how to prepare for this revolution – both in terms of potential opportunities and costs.
Take online security for example. PSD2 is expected to make “Two Factor Authentication” mandatory. In addition to password/User ID, a second layer of security will be required. This could include anything from codes sent to your phone, to thumb prints or iris recognition. Has your business started to develop solutions to allow this to happen?
Possibly not. Possibly you are waiting for things to be firmed up. Despite being less than 12 months from the implementation deadline we still don’t know exactly what the standards will be, or who will be able to have access to what. All this will become clearer over the next 6-8 months.
However, one thing is sure – PSD2 is going to happen and it is going to change the way we handle online payments. Whether that is on the scale of the Apple Store in 2007 or not, this is clearly one acronym that it is worth keeping an eye on.
Laurence Weinberger is a bi-lingual journalist with extensive experience of writing on a range of topics for both consumer titles such as Elle magazine, Time and the Evening Standard as well as business publications including Thomas Cook, Barclays, British Airways and Unilever