On January 13, 2018, the EU’s revised directive on payment services, PSD2 , will come into effect. It entails an obligation for banks to make available Instant Payments – i.e. payments in real time – throughout Europe. Money must transferred within 10 seconds and 365/24/7. But what does this mean for financial institutions, retailers, consumers and businesses? What are the challenges? What are the opportunities? And, what role can play third-party payment service providers such as Payment Service Providers (PSPs) and Payment Initiation Service Poviders (PISPs) in the successful implementation of the directive in online trading and at the POS? Read more in our interview with Dirk Wonka, Payment Garage GmbH, a provider of innovative cross-channel and cross-border payment solutions.
Mr. Wonka, who needs Instant Payment? And why?
Dirk Wonka: If set up well, instant payment can be a very good thing for everyone. Consumers can make urgent bank transfers online very quickly also on Sundays and public holidays, so that deadlines are not exceeded any more. Traders and companies get their money faster and much safer, which increases their liquidity. And banks can expand their service portfolio and gain a competitive edge through improved customer experience. In general, customers show increasingly less understanding for cut-off times and fixed opening times in the digital age. People have been growing used to things being done promptly and directly. Anyone who wants to deliver a positive customer experience at the POS or on the web does not get around instant payments and other innovative payment services.
Why did it take so long to make instant payment services available to everyone in Europe?
Dirk Wonka: There are many reasons for that. For one thing, it is not enough just to implement national systems. With the growth in cross-border payments there must be created international standards to enable intelligent and efficient instant payment solutions at international scale. SEPA-based PSD2 creates a new basis for a Europe-wide payment solution. On the other hand, it is necessary to put innovative players in a position to help banks solve the technological challenges of instant payment. PSD2 opens the market to highly innovative third-party providers including Payment Initiation Service Providers and Account Information Service Providers. Financial institutions must now provide interfaces (APIs) that give forward-thinking third-party players authorized access to their clients’ bank accounts. With that said, the EU regulations open up new opportunities for all participants in the market.
How can banks profit from these new developments?
Dirk Wonka: Banks can now increase their omni-channel capabilities by providing their customers with access to all sorts of payment methods, including those that go beyond traditional electronic banking applications. This is a very good opportunity for them to advance their service portfolio and make it more innovative, competitive and efficient.
And how can merchants benefit from instant payment?
Dirk Wonka: Here, qualified and experienced payment service providers (PSPs) come into play. They have to offer more than just advanced solutions but also give orientation, thus ensuring that really viable, efficient and secure solutions are used. In general, merchants face the challenge of non-transparency and complexity in the market with its multitude of vendors and solutions not only in the field of instant payment. Here, it is vital to create transparency, for example via online platforms such as offered by PaymentGarage, reducing the complexity of decision making and contracting through clear, automated processes.
What are the features of a good instant payment solution?
Dirk Wonka: Dealers need to be able to offer their customers a unified customer experience across all sales channels. Real-time payments must be available not only at the POS, but also in online shops. Furthermore, refunds have to be processed in realtime as well. Thus, merchants must be provided with central plaforms that integrate all types of payment and work safely and smoothly with APIs of account-holding banks. Instant payment is arriving in the EU and we are ready to go.
Will the launch of PSD2 bring dramatic changes in the payment market?
Dirk Wonka: Online banking and payment via terminals will continue to play an important role in the market. Plastic cards and chips are still playing a dominant role at the POS today. I reckon that instant payment will be one of many ways to pay. After all, it is important that as many banks as possible participate in the system to make it a success. Here, the new directives issued by the EU and ECB have created a good foundation.