A PSD2 interview with Worldline’s CEO, Gilles Grapinet, by Norfico
On Saturday 13th January, the long-awaited Revised Payment Services Directive, PSD2, has come into force in all European countries. The PSD2 is probably the most ground-breaking piece of legislation concerning the financial industry ever adopted by the EU. It has been debated endlessly during the past couple of years, and its impact on the financial industry - including the fast-growing fintech part - is anticipated with great excitement, mixed with a certain amount of fear and trepidation.
In this interview, we ask Worldline’s CEO, Gilles Grapinet, about his and Worldline's expectations of the PSD2. And since Mr Grapinet considers himself a believer in the European project and Worldline is a truly pan-European payment leader, it probably comes as no big surprise that expectations for the near future are high, not only for Worldline, but for a wide range of players within the industry - including banks, merchants, and obviously fintech companies.
What is your overall view on the new Payment Services Directive? What is important about it and what impact do you expect to see from it going forward?
The PSD2 is a game-changing regulation. It is not just another set of rules in the world of banking. It is a way to unleash the value of data - in this case of course banking and payment data – and it has the potential to create a new type of economy model for banks as well as for several other parties. During the last fifteen years, we have seen several examples of radically new business models based on access to data. The PSD2 brings the platform economy concept into banking, and nobody should understate what that means. Another key aspect of the PSD2 is security. The SecurePay initiative had introduced requirements to secure online payments. Now with the PSD2, security will cover all transactions through the reinforcement of customers' authentication. Trust and security are essential in the digital world and the PSD2 will make users more confident in this new ecosystem.
Over the past two years, Worldline has worked closely with bankers, fintechs and different regulators over Europe to elaborate the foundation of the new payments ecosystem. We have participated in all the public consultations and we are active members in European working groups in different countries. Based on the conversations with many European banks, I am confident that they have understood the strategic importance of the new directive. Looking at the PSD2 solely from a compliance standpoint would be like grasping only 10% of its full potential.
Could you elaborate on what the remaining 90% is all about? What is the full potential for banks?
My point is to say that you need to look beyond compliance. Banks are compliant organizations by design, so they will of course cope and meet the compliance requirements. What is beyond the 10% for banks is the opportunity to become Third Party Providers (TPPs) themselves, and to extend their partnership ecosystem with many different types companies. We immediately think of fintechs, of course, but it may as well be merchant organizations, governments, or other banks. For banks, the PSD2 is a goldmine of opportunities to bring value to their customers, and the PSD2 will accelerate the banks’ own development too and encourage them to take the next natural step and start exploring the new landscape of Open Banking. So, when you look at all this potential in total you have the 90% I was referring to, which is not about compliance, but about business - and when you look at the PSD2 you must think business. The challenge will be to offer experiences and not only products. The PSD2 will make this transformation from consumption towards the selling of usage a reality.
If you look at the banks in Europe, in general, are they ready to explore and exploit the opportunities of the PSD2?
Well, 2017 has been characterized by a kind of ‘wait and see’ attitude towards the regulators. But at the same time, we have seen an acceleration of the business initiatives among the large banks. They clearly understand that the platform economy is the new normal for their business, and they have started to move accordingly.
The midsized banks - and we have a lot of them in Europe - are facing some challenges, and their primary focus is to find the best and easiest way to comply with the PSD2 requirements. They know that they must comply simply to keep their banking license, but they often do not have the bandwidth to look beyond the regulatory demands.
Finally, you have the specialist banks or the neo-banks established within the past ten years. This new group of players was born into this new world of digital services, and they will do their best to take advantage of the PSD2. They operate branchless, and for them, the PSD2 is just a way to extend their ability to connect to the existing banking landscape.
So, this is, in broad terms, the PSD2 banking landscape across Europe. Of course, with some differences of maturity between countries, but not that much. The PSD2 is creating a type of level playing field in Europe, and we are not going to see many regional differences. As the waiting period draws to a close, there seems to be a general awareness of the need to develop a global PSD2 strategy in each organization, and not only from the IT point of view.
Even if we look beyond Europe, the PSD2 is having an impact and many countries look to EU almost as a test lab for innovation in banking and payments. For instance, look to the Asia-Pacific region where India, South Korea and Australia are all considering implementing requirements inspired by the PSD2.
Would you say that the resistance and the fear that we saw among a lot of banks towards the PSD2 a year ago has vanished?
The resistance and the fear is no longer a topic. The PSD2 is a reality now. It is a regulatory reality, and it is more and more well-received. The players that were trying to only keep a defensive stance have given up their position because regulators have introduced some modifications to take into account the different visions. Even if some parties wanted to go further on certain points, the debate is closed (under final validation respectively by the European Council and the European Parliament). The questions are now ‘how do we do it?’, and ‘how can we take advantage of it?’
So far, we have talked about banks, but the PSD2 is, of course, also very relevant for fintech players and merchants. How do you think that the PSD2 will impact these groups?
Well, Worldline has done a lot to collect knowledge about this and to engage with the different stakeholders and future participants in the PSD2 ecosystem, and we have created a very large ecosystem of partners ourselves.
If we look at the fintech companies first, some of them are really engaged and have been so for years as TPPs. For companies like Klarna/Sofort, Linxo, and Trustly, the challenge is to reach a significant market size very quickly because now, after the PSD2, the competition will be cross-European and, since most of them are local players, they need to expand their footprint. So, for them, it is a race, because what was unique in their former position will be pretty much standard going forward. Then we have the new entrants. Hundreds of millions of euros have been invested in venture capital by many companies to support new usages and new experiences for customers, and we can expect to see an explosion of offers, and only the market will tell who will bring real value to customers in the end.
But maybe the ones that are best positioned to take advantage of the PSD2 are not the fintechs. I have in mind organizations that already have today a high level of customer relationship and millions of customers. I am thinking of the large retailers and the large telcos, and also probably some important public services that will become TPPs and expand their value proposition. And we know for sure that they are ready, so we can expect the big B2C brands to take advantage of the PSD2 and to set up TPP services either directly or through partners like Worldline.
And what about European consumers? Do you think that they are ready to embrace these new services?
That is a good question because there is a big unknown when it comes to speed and depth of adoption among the consumers. We will have to see how many citizens will be comfortable with granting accesses to the TPPs. It will probably take a while, and there is work here to be done that involves all participants to create the necessary level of trust. But I am optimistic because we see that consumers are already embracing digital wallets in which they store and give their payment credentials to third parties. And I believe that the PSD2 will not be seen as very different. But what will change is the number of participants that will request this type of permission from the consumers, and it remains to be seen how it is accepted and who will ultimately be the real winners of the battle for permissions.
If you were to give a couple of recommendations to the different stakeholders, what would they be?
To the banks, I would say that compliance is just a small part of the overall PDS2 story for them. Taking advantage of the PSD2 as banks and becoming TPPs themselves to expand their value proposition and to orchestrate better value propositions with third parties is certainly the core challenge, and we, at Worldline, are ready to support them both at the conceptual level and when it comes to implementation in an efficient and cost-effective manner.
For other organizations, the PSD2 is a rendez-vous that must not be missed. The PSD2 is a world of opportunities for many players in the market. Banks certainly first, but also all the large B2C organizations. The PSD2, from a strategic and a business perspective, should be very high on the agenda of anyone in charge of these organizations. We are talking about investments to create the new infrastructure of the European payment landscape that should last several decades.
If you were to suggest the content of a future Payment Services Directive, a PSD3, what would that be?
You are right; we already need to think about the future challenges and the future opportunities now.
At this stage, we are still talking about systems in which human intervention will be quite intensive, and the PSD2 framework is still a human-driven type of interaction. But the next wave of development of real-time payment framework will probably be about IoT and artificial intelligence, and we will see an expansion of the framework to allow ‘things’ to access consumers' bank accounts.
This will, of course, require permission from consumers, but, fundamentally, it will happen without human intervention, either triggered by a device or by a piece of AI software. And this will need to be properly regulated in due time to ensure that we keep the same level of trust and security as we have today.