More red tape is looming for banks and building societies – this time affecting institutions who offer cash savings accounts for their customers.
EU Payment Services Directive 2 (PSD2) will require providers of instant access accounts to implement a number of new services for their customers, all of which need to be considered carefully and which ones are mandatory. This is seen by the Eurozone as an extremely important initiative in banking with wide ranging benefits for the consumer.
Firstly, online access to these accounts must be secured using strong authentication. In practice this means the user cannot simply rely on passwords, memorable phrases etc., but must also provide physical or biometric proof of identity. For mobile solutions, this could use the fingerprint reader built into many handsets, while for desktop PCs customers could be issued with an electronic device that generates a one-time passcode for each session.
Secondly, a new mechanism called Account Information Services (AIS) will require providers to expose account information and account functions through an application programming interface (API), allowing third party services to aggregate account information from across multiple providers. Once implemented, this will allow a customer to log onto a single online banking portal or app, where they can not only see their various accounts but also move money between accounts that are provided by different institutions.
Finally, the Payment Initiation Service (PIS) will allow online merchants to take payment for goods and services directly from customers’ savings accounts using another API. The deposit-taking institution will be required to settle directly with the merchant, i.e. withdraw the funds from the customer’s account and send them to the merchant.
PSD2 is being implemented in phases, with full implementation not expected to be until 2019. Given the potential complexity of implementation and the associated business challenges, it is important for lenders who are affected by these changes to start thinking about their approach.