Ever seen the entire premise of your very existence slip away in front of your eyes? Ever sat back happy and comfortable as the cash rolled in, as the masses blindly accepted the status quo. Ever ignored the coming of digital photography? Ever worked for Kodak?
As January 13th, 2018 thundered past, the EBA (European Banking Authority) PSD2 standards finally came into play creating the long-awaited opportunities to truly break the payments status quo. Trusted retailers were given the opportunity to engage directly with you and your bank account and finally avoid the literal world domination of the payment schemes.
For as long as credit has been available on a plastic card, the merchant has had little or no say in how they accept payments. In fact, looking at some of the most significant UK retailers, that pain is often more than £50m per annum in Merchant Service Charges. That's a lot of pain! Which of course the retailers have fought back against. Sainsbury's tackled Mastercard head-on in the Summary of 2016, successfully winning damages of £68.5m with other UK and EU retailers hot on their heels, attracted by the sweet smell of disruption.
Of course, on the other side of the fence, the bank's retail customers have been in a similar situation. Limited access to your own data and when you do, it's only through the gates of the mighty bank, however no mass litigation from this side for obvious reasons.
Hence, it’s become the largely held belief that the big 3 are the monopoly on the world of payments, and with that in mind, PSD2 is born.
As the EU Payments Service Directive II comes into being, retail banks are being forced to relinquish their iron grip on customers account data. The opportunities this opens up to the retailer for innovation in European payments are going to be truly breath-taking and not just a little disruptive. Expect some big changes not only for the banks but also for the giants that are VISA and MASTERCARD.
For some time as a payments professional its been clear that to drive revenue's, we need to tackle the emotional friction of the payment. The resistance we subconsciously feel as we tackle the payment. Looking at this friction in some detail, it becomes apparent that it's the unknown that slows the payment down, and by this, I mean not having the information available to you to be able to make informed financial decisions.
With the arrival of PSD2 retailers can now tackle this problem head-on. Imagine a checkout process that not only provides a one-click (low cost) payment option but also displays to me how much I've saved for this purchase, what other accounts might be available to me to help finance this spend and where else I could use these hard earned funds? The option to transfer from my gift card account to my current account, to send the funds directly to my partners' account, all whilst significantly cutting the cost of the payment to the retailer.
These are genuinely tantalising possibilities.
However, the challenge that faces us right now, is that none of this has been proven in the crucible of retail, and there's going to be some fairly significant issues to overcome. First off, getting hold of the API specs would be of real use, and it doesn’t help that 6 of the 7 banks have still not released their specifications. It's as if they’re dragging their feet.
Gareth Batchelor's article from January of this year articulates the perennial battle between innovation and security really well.
Dealing with the unknown will always be difficult.
Can my PSD2 enabled Facebook account be hacked? (you'd be foolish to think not) what happens when it is? Both are going to be excellent questions to consider, and this is where the retailers guided by PSD2 are going to have to work hard to resolve this problem.
Gareth articulated a couple of challenges that I think are worth following up, but from a payments perspective;
As we know payments are all about trust. I trust my bank to pay my supermarket, I trust the scheme's to be the intermediary in the transaction as much as I trust my favourite supermarket to deliver my shopping each Tuesday evening. In many ways, I trust my supermarket more. It will be this trust that has to be extended to my financial dealings, and only if this trust is present will I be happy to allow my supermarket to transact on my behalf. It will be my retailer's responsibility to build the trust.
… is always going to be an issue. Developing, building, fixing and running a whole new way of 'doing' payments is not going to be cheap, and what retailer has these kinds of funds? Surely, however, it's a simple business decision. Invest £10m from your annual £50m Interchange Fee to leapfrog the competition? It will certainly require some deep pockets, but the returns could be huge.
The reality here is that retail banks have held the monopoly for too long. The alternative, to not opening up the bank's data is stagnation, and quite simply this is not an option. There must be change, and we need it now. It's a bold new world of opportunity for both retailers and banks, however, we’d be foolish not to expect some pain, but the pain will be worth it.
But of course, it's never that simple, ask Kodak.
These are the ramblings of an unashamed innovator who sees change and progress as the only option. I'd love to hear your thoughts.
Is PSD2 the best way to release the hold of the retail banks on the world of payments or are we simply running headlong into a world of pain?
Russell leads the Savanti Ltd Payments team enabling payments for clients across the globe, having extensive knowledge and 'real-world' experience of tier 1, 2 and 3 merchants, as well as financial issuing and acquirer providers. Russell has successfully delivered strategic payments services to organisation including RS Components, Rabobank, SODEXO, Raphaels Bank, UK Fuels, Tesco Bank, Virgin Money and Travelex Financial Services.
Prior to joining the Savanti team, Russell lead one of Europe’s largest retail payments outsourcing programmes, enabling the UK’s largest grocery retailer to benefit from a significantly improved eCommerce and Store based payments infrastructure.