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  • @fintechna 10:00 am on February 6, 2017 Permalink | Reply
    Tags: , , , psd2,   

    Will the API Economy breed a Credit Card/ACH hybrid after PSD2? 

    Will the API Economy breed a Credit Card/ACH hybrid after PSD2? regulation

    is creating a new distinct species for retail digital payments in the EU. Shared by account servicing and third party payment initiators, there will be a customer-triggered Credit Transfer for transferring funds from a customer’s account to that of the Merchant providing the goods or services. Upon receipt of payment, the merchant ships the goods/releases the service. By relying on bank security, this method of payment is hard for fraudsters to replay elsewhere, the speed is moving to “immediate,” and there is an irrevocable payment to the merchant. Unlike a credit card, the method does not offer any repudiation mechanism and does not facilitate reversals or refunds. This new species will only live in the EU. Much of the underpinnings for PSD2 comes from the SEPA elements of the Economic and Monetary Union project in the EU.

    This newly bred species faces entrenched competition from a dominant older Card species that has ruled the consumer payments Savannah globally for over 50 years. The DNA of this species is from the US. There are US firms in leading positions globally in the main elements of the payment card value chain. US-born VISA and Mastercard as Card Schemes are effectively the franchisors of the card payment ecosystem.

    Although banks across the globe issue payment cards to customers, the highest volume issuers are typically US banks. Issuers introduce consumers into the card payments ecosystem, under license from the card payment schemes. Acquirers are responsible for capturing the POS transactions and submitting these transactions to the card scheme for authorisation. If the consumer has the funds or the credit, this process leads to the merchant receiving the value of the goods or services sold. There is also an extensive and distinctive value chain supporting Merchants.  Acquiring Processors provide sub-supply for Acquirers, and US firms are global leaders in this activity. There is a deep sub-supply value chain for Acquirers, with US expertise often to the forefront. The Point of Sale (POS) or Gateway providers offer hardware and software services for the secure capture of payment card details. POS or Gateway providers often innovate in adjacent categories to card payments such as retail inventory management and cash register software. US-led investment is also to the forefront in this area.

    Within all these moving parts, there are processes that are relatively unique to the card schemes, such as , rules, penalties, standards, procedures, brand guidelines, financial settlement platforms, security protocols, chargebacks, holds, stand-in processing, reserve accounts, minimum monthly payments, interest-free periods, etc.

    It is interesting to speculate about what Merchants would ask for if they could pick and choose their best possible combination of features from both species.  Here are a dozen simple and crude requests that a Merchant might make if they could define a hybrid payments collection service between ACH and Cards:

    1.      “If the customer pattern moves to bank-to-bank credit transfers after PSD2, as a Merchant I want to see the same share of my sales being funded by unsecured consumer credit as when I saw a Debit Card/Credit Card split. I want customers to have still the same opportunity to buy on credit if some or all of my product range is priced at high values. “

    2.      “Even if banks start to provide credit through unfunded bank accounts rather than card limits, I want my customers to have still the type of structured credit agreements that they liked with Cards, such as minimum monthly payments and interest-free periods. Ideally, they should get to choose the optional elements of their credit agreements.”

    3.      “I reluctantly accept that I have to carry the overhead of a trusted dispute resolution mechanism for higher value purchases. I want my provider to educate the customers properly on when this protection exists and when it does not exist. “

    4.      “I do not want any repudiation mechanism for the consumer for small value transactions. I have my statutory obligations built into my complaints and refund processes.”

    5.      “I want the low-value purchases made without credit paid to me immediately.”

    6.      “I want the simplicity and predictability of ACH pricing, not an array of fixed, variable, tiered and once-off card charges.”

    7.      “I do not want “holds” put on my money if the business is unexpectedly good compared to projections nor do I want to have money retained in “reserve accounts” in case of chargebacks. My bank should do all the due diligence on my activities, and that should be enough.”

    8.      “I do not want to store the digital credentials of my customers, and I do not want to have to comply with a “PCI” security standard that could bankrupt my business with fines and penalties. I am a retailer, not a professional cyber-security company or a bank.”

    9.      “If the customer is buying from me remotely on a mobile phone, I want minimal delays and friction but also strong customer authentication with the minimum of variation for transaction size and payment type. These security controls should be so elegantly designed that only thieves and fraudsters abandon transactions.”

    10.  “I want value-added services that come with my point-of-sale payment collection services, such as inventory management software, cash drawers, and an App Store, especially for retailers. I want these value added services to work with all payment types.”

    11.  “I want working capital finance opportunities that capture all my trading process delivered seamlessly to my business at POS. I don’t want offers of finance that are specifically confined to Cards traffic or some other specific payment mechanism ”

    12.  “I want payment schemes with great brands that are recognised globally and entice consumers from all locations, not just EU.”

    Producing a hybrid scheme of this agility and desirability is a very tall order, given that the most important suppliers tend to have their capital, infrastructure and knowledge tied up in one of the two models. The biggest EU banks that will handle most of the PSD2 payment initiation volumes are very mature organisations with monolithic software platforms. The major card processors and platforms are also large and mature organisations with monolithic software platforms. They also have very distinctive knowledge bases, focused on either Cards or ACH. They look out at the world from within this history, with a perspective of customer needs influenced by their current model.

    Given these rigidities, is a hybrid model that might delight Merchants a pipedream? Perhaps not, if the theoretical promise of the “ ” becomes a reality. The API Economy is a set of business models and channels based on secure access to functionality and exchange of data between businesses through Open APIs.   An Open API is a publicly available application programming interface. It provides third-party developers with programmatic access to a proprietary software application. APIs can also be used within businesses to clearly define automated methods of communication between various software components.

    API advocates make many claims about their usefulness. They argue that APIs lower barriers to entry for programmers. They make designing complementary programs easier and faster. Modular design, enabled by APIs, allow software designers to create, modify and remove components. Modularity combines the standardisation needed for high volume processes with customisation required for bespoke design. APIs also enable measuring and metering the third-parties that are accessing and using these resources.

    Both Banking and Card Processing specialists are in mature industries with many monolithic systems and divisional organisational structures. All mature industries face a range of challenges adapting to Open APIs. They will have to modify performance management and measurement systems. They have complicated and expensive investments to make to develop modular software with a microservices architecture. Open APIs are entirely different to own-brand products in mature industries. The monetisation goals for Open APIs will have to reconcile with the goals of own-brand products. Mature industries with very established patterns of pursuing profits at divisional level might struggle to see where they will capture value from Open APIs. Older businesses that were not born in the networked economy can be excessively focused on the downside risk of data travelling out to third-parties.

    By definition, all of the service domains required for the market to assemble the Merchants wish list for “the ideal hybrid ACH/Card scheme” must already exist. In general, these services are locked inside the software architecture of the respective service providers, either banks or major card specialists.  These service domains have Machine to Machine and Human to Machine interactions.  Machine to Machine interactions has content suitable for data fields that can be passed between applications. The level of detail in the interactions influence the potential for Open APIs. These interactions contain identifiers and depictions that can be explicitly mapped to a data structure. The standard of detail is very high. Human to Machine interaction includes structured forms of information that are completed by a person during a service exchange. The API Economy has the potential to capture the Human input through more applications and more convenient applications.

    In crude conclusion, notwithstanding the difficulties for mature firms in changing their business models, Open APIs could revolutionise how data and services are distributed. Given the regulatory intervention, the Card specialists in particular seem to have an incentive to make some or all of their characteristic and value adding service domains available to all models, whether there are 3 or 4 parties involved in a scheme. It could be a 2-model world with tighter margins, so they need to profit from both models. If the reality of the API Economy matches the theory, we could see some hybrid species in the future.

    is Author, “PSD2 in Plain English” at Rohan Consulting Services Ltd.

  • @fintechna 3:35 pm on September 23, 2016 Permalink | Reply
    Tags: , , , , , , Directive, , , Matters, , psd2,   

    EU’s Payment Services Directive (PSD2): What It Is And Why It Matters 

    Recent regulatory changes in Europe, including the (), are set to accelerate payments innovation.

    The Payment Services Directive (PSD) was initially adopted by the European Union (EU) in 2007 and aimed at providing a legal framework for all payments made in the region with the purpose of making these faster, more efficient and easier to use for European consumers and payments services providers.

    In October 2015, the EU adopted a revised PSD &; also referred to as PSD2 &8211; that sought to enhance consumer protection, promote innovation and improve the security of payments services.


    PSD2: What is it?

    PSD2 is a major policy development expected to impact the payments industry across Europe through: further standardization and interoperability of cards, Internet and mobile payments methods; the reduction of barriers to entry in particular for card and Internet payments providers, driving thus increased competition, innovation and transparency across the European payments market; as well as providing the necessary legal platform for the Single Euro Payments Area (SEPA).

    The directive seeks to improve the existing EU rules for electronic payments, while taking into account emerging innovative payment services, such as Internet and mobile payments. It sets out rules concerning:

    • Strict security requirements for electronic payments and the protection of consumers&; financial data, guaranteeing safe authentication and reducing the risk of fraud;
    • The transparency of conditions and information requirements for payment services;
    • The rights and obligations of users and providers of payment services.

    The regulation came into effect on January 12, 2016, and EU countries must incorporate it into national law by January 13, 2018.


    The impacts

    The new directive brings key changes that include:

    Third-party payment initiation: Payment Initiation Service Providers (PISP) will be able to initiate online payments from the payer&8217;s bank account. This will encourage competition in the European payments industry. Accenture estimates PISP services could account for up to 16% of online retail payments by 2020.

    The definition of a &;payment institution&; is extended to new types and categories of players. While the original PSD applied only to transactions occurring within the EU, the PSD2 will extend this scope to &8220;one leg out&8221; transactions.

    Third-party account access: The directive will regulate account information service providers (AISPs). These providers act as aggregators of customer payment account information.

    Prohibition of card surcharges: The regulation seeks to standardize the different approaches to surcharges on card-based transactions across the EU.

    Security of online payments and account access through the introduction of new security requirements for electronic payments and account access, along with new security challenges relating to AISPs and PISPs.

    The directive will affect everyone in the shifting payment landscape. This includes , fintechs, the PCI (Payment Card Industry) as well as merchants.

    EU’s Payment Services Directive (PSD2): What It Is And Why It Matters fintech

    How PISPs and AISPs will change existing interaction models between customers and banks, Accenture report &;Seizing the Opportunities Unlocked by the EU’s Revised Payment Services Directive&8217;

    PSD2 will bring both challenges and opportunities for European banks. Banks will be required to open up their infrastructure to third parties by offering APIs under the XS2A (access to account) rule. They will be forced to grant them access to their customers&8217; online account/payment services in a regulated and secure way.

    On the other hand, PSD2 presents significant opportunities to grow new revenue streams &8211; by facilitating and monetizing access to raw data and banking services, for instance &8211;, capture customer ownership and process toward an extended ecosystem centered on the &8220;Everyday Bank,&8221; a concept that takes banking to being trusted, indispensable and central to consumers&8217; everyday activities.

    EU’s Payment Services Directive (PSD2): What It Is And Why It Matters fintech

    EU banks: challenges and opportunities of PSD2, Accenture report &8216;Seizing the Opportunities Unlocked by the EU’s Revised Payment Services Directive&8217;


    Featured image: Mobile banking concept by Ditty_about_summer, via Shutterstock.com.

    The post EU&8217;s Payment Services Directive (PSD2): What It Is And Why It Matters appeared first on Fintech Schweiz Digital Finance News – FintechNewsCH.

    Fintech Schweiz Digital Finance News – FintechNewsCH

  • @fintechna 6:00 am on August 4, 2016 Permalink | Reply
    Tags: , cro, , open banking, psd2   

    Where are the likely “banana skins” for bank CROs from PSD2 and Open Banking? 

    Where are the likely “banana skins” for bank CROs from PSD2 and Open Banking? regulation

    In general, Chief Risk Officers (CROs) and Boards of Directors of traditional probably lose a lot more sleep over the health of bank balance sheets rather than the security and agility of daily payments and accounts processes.   A failure to control the quality of loans on the balance sheet is an existential risk for a credit institution.  A failure to maintain depositor confidence, leading to a cataclysmic outflow of funds from the liabilities side of the balance sheet, is also an existential threat.  While significant frauds, security failures and data privacy breaches may tarnish bank brands, slow business growth and lead to very large regulatory fines, these events have to be incredibly large and systemic to suddenly wipe out a bank’s equity or cause a loss of a banking license.

    Although banks may have ultimately adopted progressive API Strategies over time, banks are being compelled by to adopt API-driven business objectives and processes against a fixed deadline.   Without regulatory intervention, the timing of this change would have been commercially driven.  In more normal circumstances, the Boards of these banks could have approved new API Strategies (covering API provision and consumption) with a defined appetite for risk.    This is the level of risk that a bank is willing to accept in order to deliver these business objectives.   It will be important that the mandatory nature of PSD2 does not inhibit banks from carrying out these important disciplines.  Even a “comply only” API business strategy prompted by PSD2 does not mean that bank Boards are not ultimately responsible for the risk profile of these business activities. 

    To try to avoid adverse outcomes, bank management and Boards of Directors spend much time defining their appetite for risk.  To inform the process of defining risk appetite, banks invest much time and effort in developing risk models.  Many of these risk models are devised and prescribed from the “top down” by Regulators and prescribed to a class of banks, in order to compare risk profiles.  Risk models are also devised and implemented from the “top down” by and specialist risk management staff.     For example, banks model the adequacy of capital levels and loan loss provisions in adverse economic conditions (often under regulatory supervision, such as the recent Stress Tests conducted by the European Banking Authority). These models help inform CRO responses – can and should risks be avoided, reduced, shared or accepted? 

      , the author of this post, is also author of “PSD2 in Plain English”.

    Where are the likely “banana skins” for bank CROs from PSD2 and Open Banking? regulationWhere are the likely “banana skins” for bank CROs from PSD2 and Open Banking? regulationPSD2 in Plain English (Payments Landscape
    for Non-Specialists) (Volume 1)
    Where are the likely “banana skins” for bank CROs from PSD2 and Open Banking? regulation

    PSD2 and is not a matter of a faster growth rate or a diversification into new market segments, using established business processes and risk models.   In broad terms, PSD2 is extending and blurring the boundaries of a bank.  With PSD2 and Open Banking, there are now new risks to a bank’s risk profile outside of contractual arrangements that the bank has chosen to enter.   It could be difficult for bank CROs to fully understand and fully embrace the lessons from risk management problems inside PSD2’s “Third Party Providers (TPPs)”.

    Does a bank’s CRO have a big blind spot in this new Open Banking environment?  As the layer of overlay Payment Initiation and Account Information services grows into an ecosystem, the capability of the CRO to quickly identify where a fraud could happen or how a fraud was executed will fall.  The possible points of weakness increase as more and more payment initiation is captured by the risk management and security of TPPs.   There may be many TPPs for a certain type of payment or a certain device or security protocol that is breached across many TPPs.   Calls from puzzled customers to a bank’s Call Centres will have many more scenarios to plan for and many more scenarios to try to understand. Call Centres will ideally have to know exactly the TPPs, current and lapsed, that a customer has granted PSD2 access to.  Call Centres and Client Education will probably have to prepare and plan for the emergence of imposter TPPs.  The normal patterns of API calls on a bank’s payments hub will have to be tracked as accurately as the normal pattern of customer instructions through proprietary channels,

    The initial risk model prepared for PSD2 and Open Banking will have to come from the “bottom up”.   Staff managing business units with expert knowledge of a certain set of products and processes can model their risk profiles from the “bottom up”.   These models are used across a range of risks to help banks identify and manage the risks that they are running.  A very common model is a “Risk Matrix”.  It is a simple mechanism to increase visibility of risks and assist management decision making.  The severity of an event could be classified as Catastrophic, Critical, Marginal or Negligible.  The probability of an event occurring might be categorised as ‘Certain’, ‘Likely’, ‘Possible’, ‘Unlikely’ or ‘Rare’.  It is likely that the technical function that physically manages the Private, Partner and Public APIs will be documenting new risks from newly published APIs on their unit Risk Matrix.  The commercial function or functions that have line of business responsibility for API Monetisation and PSD2 compliance will probably be documenting different PSD2 risks a different Risk Matrix from a commercial perspective.  

    The initial risk model will have to correctly identify and maintain the correct number of Payment Accounts that must be exposed by law. Banks will need to ensure that new controls are designed and effectively implemented so that TPP Permissions can be revoked by End Users who hold accounts at the bank. API Related Complaints by End Users or by API Developers will need to be monitored as potential indicators of risk.   Managing data and privacy (both of customers and API Developers) appropriately in an Open Banking environment is a risk.  If an API is temporarily or permanently withdrawn, a bank will need to understand the implications of that action.    When significant actions or first-time processes are triggered by the end users, banks will need to be sure that Out of Band Challenges will go to End Users.  API Permissions with an expiry date will need to expire on the time limit. If there is a dispute over a potentially unauthorised payment through a Payment Initiation Service, banks will need to be sure that PSD2 is being observed and an immediate refund is triggered.  In the early days after PSD2, there is no “typical” or “average” number of risk events to guide a bank’s risk responses or risk appetites.  Banks will also be required under PSD2 to share information on security threats.   There will be guidelines for managing security incidents and the EBA will set guidelines on how to handle complaints.

    In the early stages of Open Banking, volumes will be low.  A key driver of the “severity” weighting that bank staff will use on a “Bottom Up” Risk Matrix will be both the volume and the value of the transactions that are traveling through this process.  Relative to the volumes that currently travel through a bank’s proprietary channels and the enormous values of payments through a bank’s Treasury function, the initial Open Banking traffic is likely to be initially classified as “Marginal”.  CROs may not see Amazon, Apple, Google, Facebook and Microsoft appear in the Overlay layer of TPPs in the first few months of the PSD2 and Open Banking regime.  However, it is probably a mistake to assume that all “Fintechs” are small and undercapitalised, thus unlikely to trouble a bank’s infrastructure with a surge of volume.  “Silicon Valley” TPPs will have pan-EU ambitions and have potentially large appetites for API consumption.  Crucially, EU banks could find that 80% of their installed base of customers already trust and actively use services from these giants. 

    We can reasonably speculate that the crooks and fraudsters that exploit opportunities in digital services could have their own “PSD2 projects”.  What sort of new attack vectors for fraudsters could exist in this new, more complex environment?  Fraudsters can read the new PSD2 legislation just as well as anyone else.  The fraudster knows that a bank has only one working day after a disputed payment to refund any unauthorised payment transactions generated by a TPP.    Fraudsters will know that banks will have to deal with potential payment reversals within the TPP process while an impatient customer has launched a fresh effort at the same payment through a traditional channel.   eCommerce or Mobile Commerce transactions that historically only appeared as Card transactions will start to appear as Faster Payment Scheme Credit Transfers, disrupting and confusing customer payment profiles held by banks. Fraudsters could start to watch for authentication and control differences between TPP processes and traditional processes, building up a trusted profile for subsequent exploitation on the other process.  Fraudsters will know that sensitive personal or authentication data extracted from unsuspecting TPP customers could later be used in a bank’s proprietary channels without the account servicing bank being aware of the initial breach.    

    In crude conclusion, the initial risk profile of PSD2 and Open Banking looks quite benign compared to some of the existential risks that banks face every day.   However, as PSD2 and Open Banking starts to gain market acceptance and volumes start to ramp up, the “banana skins” will come quite quickly.  CROs and Bank Boards will have to recognise that a new business strategy like exposed APIs has to be rigorously scrutinised for risk, whether this new business strategy is enforced by an EU regulation or not.  Banks will have to prepare for the new PSD2 and Open Banking regime without any tested and mature risk models. The blurring boundaries of the organisation make a “top-down” identification of material PSD2 risks a difficult challenge for the CRO.  Risks related to PSD2 and Open Banking will not be confined to one business unit, making the “bottom up” risk profile more blurred. At an industry level, there will be a period of time before a “sensitivity level” is established for the risk profile of Open Banking processes. The addition of 5% of a bank’s total payments volumes through TPPs in immature processes may be a “marginal” change in payments volumes but it probably does not represent a marginal change in the bank’s overall risk profile.  The structure of PSD2 means that Silicon Valley giants could arrive with very large volumes and effectively unannounced, without having any prior relationship with the API publishing bank. Fraudsters will know that the addition of new overlay services managed by TPPs is a radical change in business model and is completely different to the incremental addition a new proprietary bank channel (such as tablet, mobile or kiosk) using the same proven customer profile and control processes.

    In crude conclusion, the primary risk control for banks in this environment can only be a risk-aware culture.   Bank management will have to seize growth opportunities from APIs while managing risk, just as in all other processes.   The immaturity of risk classification models, industry norms and fraud detection models will mean that bank management will have to approach this arena from “first principles”.   As API volumes grow, clear and active communication within banks and within industry bodies about the various “banana skins” will be crucial.   innovators seeking to build partnership relationships with banks in the Open Banking era should also welcome tough questions from banks about their risk control capabilities.  If a bank is asking tough questions and paying good attention to likely risks in the TPP overlay layer, that bank is far more likely to be serious about building an ecosystem out of its payment

    , the author of this post, is also author of “PSD2 in Plain English”.


    Where are the likely “banana skins” for bank CROs from PSD2 and Open Banking? regulationWhere are the likely “banana skins” for bank CROs from PSD2 and Open Banking? regulationPSD2 in Plain English (Payments Landscape
    for Non-Specialists) (Volume 1)
    Where are the likely “banana skins” for bank CROs from PSD2 and Open Banking? regulation

  • @fintechna 12:18 pm on June 24, 2016 Permalink | Reply
    Tags: , , , , enables, psd2, ,   

    How PSD2 enables the unbundling & rebundling of the bank 

    There are two types of regulation. One is just another annoying cost/process for the and a wonderful opportunity for consultants, lawyers, outsourcers &; IT providers. Another type of regulation fundamentally opens up the market for innovation and threatens the control of the incumbents. is the latter type. It is the key to&;the &;Read more How PSD2 the unbundling &38; of the&160;bankHow PSD2 enables the unbundling & rebundling of the bank fintech
    Bank Innovation

  • @fintechna 7:38 am on June 11, 2016 Permalink | Reply
    Tags: , Buyers Club, psd2   

    Will PSD2 and APIs fuel the growth of Buyers Clubs? 

     or Buying Club is a club organised to pool members’ collective buying power, enabling them to make purchases at lower prices than are generally available, or to purchase goods that might be difficult to obtain independently.  These Buyers Clubs can also describe themselves as “consumer networks” or “cost of living” clubs.

    These Buyers’ Clubs or consumer networks use combined people power to unlock group discounted offers on various household bills.  The clubs focus on arranging group discounted offers on recurring expenses such as household energy, home broadband and telephone calls.  We can also see some examples of financial customers pooling their collective buying power to source offers for financial products e.g. mortgages, credit cards and life, home and car insurance.

    The effort for the consumers to enter the process is low. Joining is obligation and cost free.  The consumer registers to demonstrate their support. It only takes a few moments, it costs them nothing and they are not obliged to take up any offers that the Buyers Club negotiates.  The consumers that become members are free to merely use the Club offers as leverage to shop around or to see if they can get a better deal from their existing providers. 

    The Club deals may not beat the consumers’ current deals.  Some consumers are on legacy deals and special deals that are not available cost-free to the general public. Other providers could also be compelled to compete with Buyers Club offers by offering more competitive offers. The Buyers Clubs differ from Price Comparison Websites in that they effectively create products and prices rather than compare them. They generate offers for Club members that are not available to individuals. The Buyers Club earns a fee from the businesses that earn customers through specific campaigns.

    At this stage of their evolution, there are many things about the registered buyers that the Buyers Club does not know.  The Club does not specifically know the current vendors that each individual buying consumer or household uses for the typical utility or mass-market financial products. Obtaining the legal entitlements of an Account Information Service Provider (AISP) under would allow the Buyers Club (with individual buyer consent) to identify the actual vendors from Payment Account narratives.  Buyers Clubs could inform themselves about their collective negotiating power with individual vendors by data-mining aggregated Payment Account data.

    There will be limitations in the Payment Account data.  Many individual vendors have a standard range of products, services and pricing packages that a buyer can choose from.  It will not be instantly clear from Payments Account data which product or product variant that the consumer or household is currently using. However, the information available on the precise products and services in use in a household is also growing and is increasingly likely to be accessible in the API Economy.  Buyers Clubs could begin (with buyer consent) to gather data on the precise products and usage patterns of consumer services.

    Domestic robots are emerging to control household utility services.  An increasing number of people monitor and change temperature settings in their home remotely from their smart phone. Smart meters will form the first smart interface between the utility grids (such as electricity, gas, drinking water) and the local utility system within households. Smart meters make it feasible for utility customers to have very flexible contracts based on greenness, time of day and day of the week. This data can be connected to actual spending in Payment Accounts after PSD2.

    Smart appliances seem likely to become part of the household in the future. The smart fridge, dish washer, washing machine and so on will start communicating with the smart grid and find the greenest or the cheapest time to use power and water. Smart fridges may even keep track of consumables and order supplies at the local super market using a PSD2 Payment Initiation API.  We can conceive of an environment when the owners of these smart appliances are sharing data on their usage patterns and their financial purchasing patterns in an aggregated services layer.

    Will PSD2 and APIs fuel the growth of Buyers Clubs? regulationWill PSD2 and APIs fuel the growth of Buyers Clubs? regulationPSD2 in Plain English (Payments Landscape
    for Non-Specialists) (Volume 1)

    While PSD2 will make the data in every Payment Account in every Account Servicing Payment Service Provider (AS PSP) in the EEA available to an aggregation layer (with client consent), there is a reasonable possibility that EEA consumers could be using a predictable range of smart home devices in tandem.  Alphabet offers both Google Home and Nest.   Like Amazon Echo, these are always-listening devices that can answer queries, check schedules and work with third-party smart home devices.  Apple seems likely to follow with HomeKit.  Data on the devices and services being used in the home seem likely to be concentrated on a small number of platforms.  In crude terms, Buyers Clubs will probably be able to use this small number of buying platforms to understand and reconcile the devices and services being used with the amounts and narratives in the Payment Accounts.

    Buyers Clubs may also become able to connect spending on health insurance premia with the actual health of the insured.   An increasing number of connected systems are used to monitor health. Pacemakers and insulin pumps can have a wireless interface. Health monitoring and other medical equipment in hospitals is increasingly connected to the hospitals’ core network.  In the face of high costs of specialist drugs and health insurance for people with known conditions, there will be significant incentives for patients to aggregate their spending patterns and health indicators into a Buyers Club structure.

    The Payment Accounts of consumers and households can hold extensive data on significant transport expenditure (insurance, fuel, tax, maintenance etc.).   In the case of private transport, modem cars contain an enormous amount of code in an increasing number of electronic control units.  Cars are now “computers on wheels.” The code modules monitor an increasing number of sensors and control and activate many actuators from lights to collision avoidance systems. As many manufacturers develop modules, the interfaces between them need to be open.  This suggests that data on motoring expenses and data on motoring patterns could be open to be shared by buyers in an aggregated Buyers Club.

    Of course, there are more than a few details to be sorted out before this connected future becomes a safe and mature reality.  This level of connectivity between devices, payment service providers, buyers and suppliers could be a hacker’s paradise during the immature phase of its development.

    From a cyber-security perspective, there is a sharp contrast between the introduction of the PSD2 and the evolution of the connected devices described above.  In broad terms, the security standards on the PSD2 APIs are being centrally planned, centrally designed and collectively implemented.  There will be obligations on registered participants under PSD2 to report security incidents, follow rulebooks and stay compliant with new risk management measures to counter evolving security threats.

    In parallel to the controlled PSD2 introduction of payment and payment data APIs, the next broad innovation cycle is likely to be the Internet of Things (IOT), where the devices that people buy/rent and use become connected.   Almost any device will have an internet address, communicate what it senses and may activate its actuators. Innovators will conceive interesting new functions and bright technical people will implement them. However, cyber security lessons identified about threats and risk to current and previous innovation cycles sometimes do not make their way into the next innovation cycle. People with the bright innovative ideas are often not educated in cyber security and neither are many of the programmers who implement their ideas. They can neglect the old threats which provide attack paths to cyber criminals.  

    In crude conclusion, PSD2 will allow consumers and households to decide to share data on how they spend their money both with their peers and with a wider range of service providers.  PSD2 could allow Buyers Clubs to play a far more incisive role in identifying, assembling and empowering peer groups of consumers to negotiate collectively with vendors.  The emerging ability of the Internet of Things to inform the buyers on their usage patterns of devices and services will strongly reinforce the economic value of this process.  However, the use of device APIs to add data into an aggregation layer by a PSD2 AISP could cause new cyber-security risks that will need to be identified and considered.

      , the author of this post, is also author of “PSD2 in Plain English”.

    Will PSD2 and APIs fuel the growth of Buyers Clubs? regulationWill PSD2 and APIs fuel the growth of Buyers Clubs? regulationPSD2 in Plain English (Payments Landscape
    for Non-Specialists) (Volume 1)
    Will PSD2 and APIs fuel the growth of Buyers Clubs? regulation

  • @fintechna 10:41 pm on June 2, 2016 Permalink | Reply
    Tags: , , , psd2   

    PSD2 Use Cases 


    I have been involved in many conversations over the past few months which have included a number of potential ideas around how will revolutionise the customer experience. Having thought about it a bit more, I have concluded that there are 4 primary use cases for PSD2 and that all of the ideas fit into one or more of these use cases:

    1) Aggregation & Cash Management/Payments Management

    Whether such aggregation and initiation is managed through an existing banking relationship or an external entity such as a Google etc. this can be seen as a key use case for the consumer and corporate to manage their cash in a real time manner and initiate payments between accounts as well as to third parties.

    In the corporate space, this can see the demise of the SWIFT cash management services which have prevalent over the past 30+ years and a migration from the overnight/intraday MT940/MT942 messages and use of realtime balances and transaction data enabling realtime reconciliation

    2) Checkout

    Today we see the likes of Amazon, Paypal etc use the credit/debit card as the means to effect checkout settlement – PSD2 offers the opportunity to display realtime account balances and initiate the push payment for goods and services. For the likes of Amazon, this could lead to incentives similar to those offered to Prime customers who are willing to sacrifice the next day service and receive a £1 credit to the digital wallet to be used against MP3 or Kindle purchases.

    There is a down side to this approach that consumers will need to be aware of which is the consumer protection that is afforded from using credit cards.

    3) Comparison Websites

    Today the comparision sites provide information on utilities, credit cards etc. By allowing access to realtime information, these sites could provide the automated management of savings to the best deals available with selected institutions. The next step to that could be the virtual banking with the website as they will manage the banking current account relationship. Using CASS to move the current account to the best deals in the market. A user could indicate they bank with the comparrrison website, be assigned a virtual sort code and account number which links to the physical sort code and account where the account is presently held.

    4) Credit Management/Decisions

    Finally, when applying for a loan or other form of credit, the ability for the consumer to allow the credit insitution/provider to be granted access to latest transaction data as a basic for making the credit decision. Moving to a more ‘knowledgeable’ basis of decision making will allow for better control of credit decisions which should reduce risk and could/should lead to lending at lower cost.

    If I’ve missed anything outside of the above then please let me know, I’d be very happy to add to my list above.

    What will make these use case a reality is the adoption by various actors (, Google, Amazon, Comparision sites etc.) but also the community to develop the apps to drive and expand the horizons of what and how any or all of the use cases can bring added value to all parties.

    is Payment SME, Consultant at Bob Ford Associates, and this post was originally published on linkedin.

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