The revised Directive on Payment Services (PSD2) doesn't actually come into effect until 1st January 2018, but I'm sure that the preparations for this momentous change are sure to be the big story of 2017.
Created by the European Commission, PSD2 is intended to break the banks' monopoly on their customers' information, enabling those customers to use third-party providers for a range of financial services, while retaining the security and simplicity of keeping their money where they have always kept it.
Under PSD2, the banks will all be obliged to give third-party payment providers direct access to their customers' accounts through Open Application Program Interfaces (APIs), enabling them to debit and credit funds at will and without charge.
Naturally, this is bad news for banks, as they will lose out on a substantial amount of fees once open APIs begin to cut them out of the international payments process. However, it is sure to be good news for every business that needs to make regular international payments, as increased competition will almost inevitably lead to lower costs as well as increased choice and ease of switching.
We certainly see PSD2 as a positive story for business, as it will enable international payment providers the opportunity to offer a wider range of payment services to merchants and international payment customers than ever before. More importantly, I expect that view to be shared by many Finance Directors, who will be able to access a plethora of new international payment products without having to deal with the nightmare that moving bank accounts often entails.
Security technology, and its perception
The actual technology to enable the open APIs demanded by PSD2 is relatively simple. I believe that the greater challenge of PSD2 is in gaining customer acceptance for what is: In simplistic terms, the chance to offer a range of third-party providers completely open access to their bank accounts.
Naturally, security has to be tighter than ever for PSD2 to work; but crucially, it also has to be seen to be tighter – simply in order to instil confidence in the open API process.
In addition to the passwords and PIN codes that already protect mobile wallets, I believe that 2017 will be the year that retinal scanners, fingerprint recognition systems and a number of other security technologies including voice-, facial-, retina- and even vein-recognition systems will really come to the fore in the field of international payments.
While some people will continue to subscribe to the notion that advances such as iris scanners on mobile devices are high-tech gimmicks that are best left to Hollywood thrillers, the fact is that some of these technologies are already appearing on smartphones and could well become ubiquitous in 2017.
It goes without saying that the ability to make payments from mobile devices is a fairly recent development, in both B2B and B2C environments. However, the technology has actually been around for a few years now; with acceptance slowed by a lack of customer confidence, as opposed to any gaps in the technology.
Yet that lack of confidence appears to be a thing of the past, with a 2016 study into Digital Payments by Visa suggesting that more than 50% of European consumers regularly use mobile devices to make payments, compared to less than 20% in 2015.
Naturally, there is a difference between a consumer using their smartphone to pay for a train ticket and a finance director authorising a significant international payment on the go. However, we are ultimately all consumers, and I think familiarity with mobile payments in B2C transactions will quickly breed the confidence that encourages business users to embrace the advantages of mobile payments.
After all, the digital transformation of many businesses means that finance directors are increasingly able to fulfill their duties when they are out of the office, and even out of the country.
In fact, we expect to see many of the advances in security technology that are driven by PSD2 quickly becoming applicable to mobile devices, with the size of authorisation limits for mobile devices rising to new levels as user confidence finally catches up with the capabilities of the latest security technology.
So in summary, while PSD2 may not be due to arrive till January 2018, I'm certain that it's going to make its presence felt in every aspect of the international payments landscape throughout 2017.