The FinTech revolution reached a turning point with the implementation of the European Payment Services Directive 2 in Italy.
As previously covered, according to the estimates of Goldman Sachs, traditional financial institutions and banks might lose $4.7 trillion in revenue to the benefit of fintech companies. Fintech firms are not expected to kill off traditional banks, but will act as disrupters cutting costs and improving the quality of financial services.
The FinTech revolution has now found a valuable ally in the PSD2. I had already discussed in this blog post about how the implementation of the European Payment Services Directive 2 (PSD2) could represent an essential step for the future of FinTech in Europe and below is a snapshot of how it has been implemented in Italy.
Broader scope of payment services
The PSD2 considerably extends the definition of payment services which now includes even companies providing “payment initiation services“ such as those FinTech companies enabling payments by watches, Apps and other devices.
The goal is on one hand to control such entities and on the other hand to identify those companies that can exploit the benefits given by the PSD2. There are lighter obligations for less invasive services, but it is always difficult to find the right balance between regulating and over-regulating.
The revolution of the open APIs
The PSD2 provides for the obligation on entities like banks to allow authorised third party providers to
- have access to their customers’ account information and
- initiate payments on a customer’s behalf
regardless of the existence of an agreement between the provider and the relevant bank upon the occurrence of very detailed conditions that are aimed at avoiding any discriminatory conduct, even between the services of the third party provider and the ones directly offered by the bank itself.
Such continous flow of data will occur through the “famous” open APIs to be set up according to technical standards set up by the European Banking Authority which represent the biggest change introduced by the PSD2. And indeed I had covered in this blog post about how banks might become a marketplace for their customers where services of third party providers are offered.
Strong authentication, better protection or limit to FinTech growth?
The strong authentication (i.e. an authentication based on the use of two or more elements) becomes a requirement to access and initiate payment transactions. The actual impact of such requirement that might have a negative consequence on instantaneous payments has to be assessed in the light of the technical requirements set forth by the European Banking Authority.
Indeed, the risk is that some FinTech or in general payment services will not be available in Europe as the strong authentication would make them excessively burdensome.
Payment vouchers get a harder life
Vouchers (including gaming vouchers for instance) that could be used for payment in a closed network of shops, websites or locations enjoyed a full exemption under the previous regime. On the contrary, under the PSD2 they are still not considered e-money, but
- in case of entities for which the total value of payment transactions executed over the preceding 12 months exceeds the amount of € 1 million
- they are obliged to send a notification to the Bank of Italy according to modalities that are still to be determined by the means of a regulation of the Bank of Italy.
We shall see how the Fintech market reacts to this new regulation and whether the new rules will represent an actual incentive for the growth of a sector which is definitely facing one of its major changes in its history.
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