Think about it this way: card payments were invented in the 50’s and haven’t changed much since. The European Commission believes they are not suitable for the digital age. Europe’s PSD2, therefore, aims to reduce the complexity and friction in the current card-based payment schemes, while encouraging competition and innovation that will hopefully increase ease-of-use for the consumer, drive down costs for the merchant, and reduce the rate of online cart abandonment. Under PSD2, fintech companies classified as Payment Initiation Services Providers (PISP) will get direct access to a consumer’s bank account via API’s, allowing them to initiate payment transactions directly from the bank on behalf of the consumer.
PSD2, over the long-term, could have widespread ramifications for the payments industry in Europe. Issues to contemplate include the potential disintermediation of existing payment networks, merchant acquirers and card issuers, how their business models might have to change, and to what degree fee revenue across the industry might change. All of these industry players could participate in a PSD2 world if they’re willing to invest in new capabilities that could operate in tandem with existing practices. Look no further than MasterCard’s bid for VocaLink. Change will happen slowly, starting in ecommerce (7-8% of European retail), but happen nonetheless.