Today we speak with Daniel Wicharz. He is currently Vice President of an international acquiring bank in Germany. We will speak about the Payment Services Directive 2 (PSD 2) which will change the way we pay even further. Having worked for well known brands like Google, Skrill and PayPal Daniel Wicharz knows the Payment Industry very well and will elaborate on what changes to Payments we can expect in the credit card and also online banking industry.
Moderator: Daniel thanks for joining us. We want to speak to you about the Payment Services Directive 2 (PSD 2) and how it will impact the industry and everyday life. Please clue us in. What impact will it have for the average person shopping online?
Daniel Wicharz: Yes thanks for taking the time. PSD 2 indeed is a very important directive from Brussels. Actually it dates from 2015, however the implementation process took plenty of time and is still ongoing. One can expect it to be fully implemented by 2019. You can look up the entire wording here: http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32007L0064&from=EN2007/64/EC .
Not many people speak about this subject, however I find it very important that consumers like you and me understand that with PSD 2 they get full ownership of their banking data. This is really new. One might ask: Do I not have the ownership already? The answer is: No. So far the data is controlled by the banks you work with. Meaning: If for instance I want to apply for a car loan today my bank will certainly not forward my bank statements, approved overdraft limits and entire scoring history to another bank from which I want to get a quote. This of course is a big advantage to the house bank. Imagine now I want to buy a fancy Mercedes. Costs me 60.000 € .
Now my house bank won’t give me a great deal, they still might charge me more than a small bank which is specialized in car loans. But moving to a competitor is difficult because any bank will demand to see my financial status. They won’t approve 60.000 € just without any kind of financial history. So I will need to copy my bank statements, payslips and other documentation that proves that I am worthy of the loan I apply for. This is a big deal and certainly encourages consumers to stick with their house bank, because this house bank will just need to look in the existing data of the consumer (which they already have on file anyway) and they can tell if one has a regular income and in general which kind of financial situation he or she is in. So they can grant or reject a loan in the blink of an eye. But this advantage of the house bank is now going to disappear. Meaning that I now can share this information my house bank has with any financial institution inside the EU which is registered.
API standards are applicable across the EU and since I am the owner of the data I as a consumer can also share it with any registered institution. So now it is much easier and faster to get a loan, mortgage, etc. from another bank or Fin-Tech. Also cross border business becomes much easier.
This is a major change and increases the competition in terms of lending.
Moderator: Does this mean lower prices to the customers?
Daniel Wicharz: Yes for sure. Increased competition will mean less margin and thus cheaper prices for consumers. Also the approval speed will go up because everything will be done through an API which has the same standards across the EU. And remember: This is not optional. It is a requirement for all banks and financial institutions. So all people that have an EU bank account can avail of that. By the way: PSD 2 does not only change the way we get a loan from the bank. It also changes the way we pay.
Moderator: What does it change in terms of payments?
Daniel Wicharz: Due to PSD 2 also the so-called Online Bank Transfers get regulated. So far they operated in kind of a grey area without any proper regulation. One person I met at an Anti-Fraud Conference even called it “legal phishing”. Now this gets fully legalized and regulated. With PSD 2 all banks also need to grant access to regulated Online Bank Transfers. This means further competition to those providers and also a better consumer protection.
Moderator: Can you name some of these Online Bank Transfer providers?
Daniel Wicharz: Sure, from the top of my head I can name for example SOFORT. This would be one of the large providers in Germany, but nowadays they also operate in other countries such as UK, Poland, Spain, Netherlands, etc. In the Netherlands you have iDeal which is the market leader in Holland. From Scandinavia many people know Trustly. And a typical German Online Bank
Transfer would be Paydirekt, which only operates in Germany.
Moderator: Which impact will this PSD 2 have on these companies you just mentioned?
Daniel Wicharz: Well for them it is good and bad news at the same time. Good because on the one hand side they finally get fully regulated and therefore have it easier to gain trust from the buyers and merchants. Also banks cannot deny the initiated payments anymore without no reason. In the past some banks even tried to block these payment initiators. Now this is not going to happen anymore.
On the other hand side these Online Bank Transfer market leaders also lose a lot of their current competitive advantage. They have invested heavily in getting access to all the different thousands of online banking systems of the many banks in EU to make the payment initiation possible. With PSD 2 you will not need so many connections anymore. It will be just one standard API with which you can access all the banks, so for new Startups it is an ideal situation. The heavy investment won’t be necessary anymore and regulation also makes it easier to avoid unpleasant surprises. Therefore I can imagine that there will be more providers in this Online Bank Transfer market in the near future. More competition means better prices for the merchants which they can pass on to the consumers by reducing prices.
Moderator: That is good news for the buyers side and Startup Fin-Techs. For the large institutions it means a difficult change, right?
Daniel Wicharz: Yes absolutely. The large providers and especially the large banks in EU will need to make sure that they do not become the provider of a pure commodity. We are about to see the unification of the EU finance market and this is a big step for the unification of our continent and also financial harmonization between the 28 EU member states. However not all banks have yet started positioning themselves towards the new rules of the market.
Moderator: What will the banks need to do in order to avoid becoming the provider of a pure commodity?
Daniel Wicharz: The banks need to be quick. So far they have the relationship with the consumers but once this is gone they really have no big advantage towards Fin-Techs anymore.
Therefore they will need to start seeing PSD 2 as a chance, because also they can access the bank details from another banks customer, given the consumer permits them to share the data. This means: The large banks will need to become even larger and also less domestic and more European than in the past. Cross border business is the new standard. They will also need to work together with Fin-Techs to profit from these new developments and to be able to influence the developments happening in the market. Fighting matters of fact won’t change anything, but using
new technologies and investment in the own infrastructure will give the early market movers a competitive advantage. Moreover the investment in the infrastructure will be necessary anyway.
Moderator: Can you give us an example why the current banking infrastructure is not sufficient?
Daniel Wicharz: Sure; first of all we all know that banking gets more and more mobile. So here banks can get their share in terms of opening the mobile apps for POS (Point of Sale) payments. We call know that the cashless society is happening and I am confident that with these Apps banks can get a new revenue stream, very similar to the EC Card (national debit card) model we have in Germany now. If I was a bank I would not leave this source of income to for instance Apple Pay. But also in terms of instant payments and real time settlement many banks need to
do heavy investment in order to fulfill regulation. With PSD 2 the times of next day settlement will be over soon. Instant transactions become the new standard and I am sure this can also increase the acceptance of Online Bank Transfers as well as Point of Sales App payments. Banks that want to be successful should invest in this segment and begin monetizing it.
Moderator: Thanks Daniel for this interesting insight.