Just over a year ago, the second Payment Services Directive (PSD2) passed into law. Together with the more far-reaching General Data Protection Regulation (GDPR), PSD2 has been described as a huge leap forward for consumers in Europe, heralding a new age for banks and their customers. Banks’ willingness to embrace, and their capacity to effectively assimilate, the changes these regulations set in motion is expected to make or break many.
So, how will the banking industry change? Has it already changed? I sat down with Frans Labuschagne, country manager for UK and Ireland at Entersekt, to discuss PSD2 and how, and to what extent, it will alter the banking sector and the way you and I access our financial and payment services.
Q: What is PSD2?
A: PSD2 is an EU directive to regulate payment services and payment service providers. In other words, it is a compliance requirement that seeks to give greater autonomy to the consumer in accessing and controlling their financial data and increasing the liability of banks to protect it.
Q: How does it work?
A: Firstly, banks and independent payment providers are obligated to ‘open up’ their data and payment initiation capabilities to third-party providers as and when an account holder consents to their doing so. Fundamentally, this has made, and will continue to make, banking more competitive. Consumers have increased privileges in sharing and accessing their data and greater control over how and with whom they do financial business.
Secondly, to protect consumers and their financial assets in this more connected ecosystem where sensitive data is shared with many more entities than before, banks are obligated to improve their security measures. A key component of this is strong customer authentication (SCA), which requires that payment services providers use two independent authentication methods to verify that transactions are legitimate.
Q: What is the deadline for PSD2 compliance and who is affected?
A: The deadline for all companies to meet the requirements of PSD2 is 14 September this year.
There are three key groups that will impacted: all banks within the EU, their customers and third-party payment service providers that are involved in online transactions.
Q: How could a failure to embrace PSD2 effect banks?
A: It is not simply about banks complying with a new set of standards. Compliance is important, of course, but the regulations actually represent a huge opportunity for established players. By truly embracing PSD2, so-called ‘legacy’ banks, often accused of lagging behind in digital transformation, can keep pace with the new innovators and disruptors and the growing expectations of their customers. If they fail to invest and adapt properly over the short to medium term, they are in serious danger of being left behind.
For instance, the failure to provide additional digital services and a seamless transactional experience to a market that is increasingly tech savvy and accustomed to convenience, makes it probable that we will see young consumers switch to those payment service providers that meet their needs, such as PayPal or the ever increasing number of mobile first challenger banks.
Moreover, when PSD2 comes into effect, banks will be more liable for fraud if they’re seen not to be taking reasonable precautions to keep their customers’ assets safe and secure. The secondary, and arguably greater consequence of this, will be the reputational damage caused to those banks not seen to be protecting customers and their data.
Q: Who will benefit from PSD2?
A: Ultimately, those banks that treat PSD2 as an opportunity to evolve and modernise, rather than a mere legal obligation or regulatory hindrance, will be the most likely to benefit.
Third-party payment providers like Apple, Amazon and PayPal are already benefiting from the more ‘open’ banking ecosystem. With access to customers’ financial data, an appreciation for innovative user engagement and transactional infrastructures that suit the needs of the modern consumer, they are growing increasingly popular. Through increased interaction with these providers, consumers are also trusting them more and more.
Finally, and perhaps most importantly, consumers will benefit from PSD2. The requirement that financial service providers and banks open their data to third parties will enable users to access all their financial information across accounts at multiple providers on a single interface. Arguably more important is that this openness will increase competition, forcing banks to improve their service offerings, making the customer experience more personal, interactive and seamless. The implementation of SCA will also see banks improve customers’ digital security.
Q: Any final thoughts?
A: PSD2 is a significant change for banks in the EU. Many of them need to modernise and streamline services to keep pace in this era of rapid innovation and change. This new regulation will either provide them with the impetus to do so or present a whole new set of serious challenges in a very competitive environment.
A PROPTECH FOUNDER’S BEGINNING, THE START OF KLEVIO AND HOW ACCESS-TECH IMPROVES FACILITIES MANAGEMENT
An interview with Klevio’s CEO and Co-Founder, Aleš Špetič
What is Klevio?
Klevio is a smart intercom that allows individuals to enter a building using a mobile app, providing digital access and removing the need to use a key. Teams or individuals can manage access rights from our dashboard or the app, understanding the usage of their buildings better, whilst cutting costs and improving efficiencies. As well as Facilities Management (FM) professionals, Klevio’s technology has been implemented across numerous sectors including short-stay lets and longer-term property management, a recording studio that manages room bookings and a London pub which allows temporary access to delivery professionals via its solution. Klevio is also popular with private homeowners.
How did the idea come about?
The founding of the team and the products we worked on came from several influences along our journey. I was still working on CubeSensors, a company I founded that created miniature sensors for both the home and offices, feeding back data on temperatures, noise, light, humidity and the likes, something of a Fitbit for the room.
My co-founder and now Chairman, Demetrios Zoppos, was involved in the creation of Sherlock, the digital entry system that went on to be the underpinning technology for Klevio. When Demetrios exited his previous company, onefinestay, he held onto the intellectual property (IP) of Sherlock, knowing that there was a future for this technology elsewhere.
We quickly came to the conclusion that my IoT experience and history with physical products for consumers and offices, and the IP he had kept for Sherlock, meant that it would be criminal not to pool our experiences and so Klevio was founded.
How do you compete with the other access solutions on the market?
We have merged the new and the old. Keys have been around for thousands of years in some way or another, so have been ripe for a digital upgrade. With our competitors, although there is some amazing technology, most add confusion or annoyance to the process. There are smart-lock providers whose technology normally requires the changing of locks or at least the installation of an ugly and not always user-friendly pin-pad at the door.
Other options require magnetic cards and in many larger establishments receptionists are paid to ensure that someone enters their email for data capture, further adding to huge setup costs. With Klevio you do not need an extra key, token, or card. Everything is on your phone, similar to Apple Pay.Klevio is installed inside the building and is connected to the existing lock.
For office spaces, co-working and other large blocks, key cards are just one more item that can be shared and lost. With Klevio there’s no need to provide a keycard to anyone and it can be connected to an existing system. Many access systems do not have this benefit, and for offices this means you can change the access to your own unit without affecting the rest of a building.
What are the main challenges for your business?
Changing a mindset. People have used and trusted keys their whole lives. Getting them to accept a simpler alternative isn’t an easy thing to do.
The other difficulty is hardware, especially when it comes to security and people’s offices and homes. With software, if you make a mistake or something doesn’t quite work, you can patch it and update things. If a hardware product has a fault, a product recall is going to be a huge undertaking, and no startup will have the budget to ride the storm like a Samsung or a VW Group. We invested a huge amount of time to make sure that Klevio performs well.
Customers need to build confidence and trust in your offering, rushing to deliver and make a splash can backfire in a huge way.
What trends in tech do you see shaping the future of offices and homes in the next five years?
In the IoT space things are moving fast with the world’s largest companies like Amazon, Apple, Google and Facebook all vying to be the centre of the interconnected home and office. There are hundreds of startups carving out their own little corners too, so the next big shift will be consolidation. The industry leaders are already making moves to buy or partner with interesting startups to get ahead on IP and reach.
On a consumer level, people want smart solutions but are increasingly aware of their rights and privacy. Products that offer that on-demand feel, making lives easier and smoother, without taking too much data, will provide that personal touch consumers want and slowly start to manage the offices and homes of the future.
What is the one piece of advice you would give an organisation when looking to digitise its processes?
Do your research – don’t rush to find a solution. There are companies out there that will be able to make your place of work run more smoothly. You just need to find the one that suits your systems, colleagues and budget.
OPPORTUNITIES IN FINTECH: LEVERAGING CROSS-BORDER PAYMENT SYSTEMS
An interview with Aron Schwarzkopf, CEO and Co-founder of Kushki, a payment platform tailor-made for Latin America.
What are some of the biggest challenges in the fintech sector, specifically related to POS payments?
There is a lack of standardization in the way that payments are handled in different countries, and this presents the most significant challenge because it complicates the process of connecting them all across borders. We’re working to address that by adding some standardized connecting processes and using artificial intelligence to help mitigate these complications and make smooth cross-border payments a given.
Why are cross-border payments becoming more of a necessity?
As the world becomes increasingly global, the necessity for cross-border payments grows. People and businesses are expanding their scope and reach and therefore need to be able to operate in different countries. Part of being functional is the ability to make those cross-border payments, and so the demand for better options for those payments will continue to grow.
What are the key opportunities for cross-border payments?
There are four main opportunities that I see for cross-border payments. The first is facilitating fast and direct payments, cutting down on the extra steps required, but still maintaining the security of the transactions. From this, follows the need (and opportunity) to centralize recurring payments. Smart links are also an area of opportunity, letting people make mobile payments through different platforms using personal payment links. Lastly, expanding the opportunity to store payment information, like card numbers, and using tokenization to facilitate recurring payments.
With several fintech startups launching recently, how can you tell which are valid?
One common mistake is to assume that just because a startup has built something innovative that it is going to be useful. Instead, the most important thing to evaluate is whether the company is offering a solution to a significant pain point or just offering a minor improvement. I recommend comparing the startup to the most established version of its product. Which is less expensive? Which is easier? Which is resolving a larger challenge? If the startup is doing well on both counts, they’re probably on to something.
What are the security concerns surrounding POS payments?
The authentication process for credit card transactions is different in different regions due to different technological infrastructure. This inconsistency can generate confusion and concern about the security of various transactions and makes it hard to verify and understand the different fraud management and security processes in place.
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