With the legal framework that will enable “the practical implementation of third party access to account” (XS2A) as part of the revised Payment Services Directive (PSD2) almost finalised, Innopay's Mounaim Cortet and Nils Jung teamed up with Deutsche Bank to look at how the industry can leverage this opportunity to develop functional, operational and technical solutions.
PSD2 introduces new services that can be offered by payment services providers (PSPs) and allows third-party providers (TPPs) to provide a new digital channel to access bank customers’ payment accounts. Its aim is to facilitate the creation of a new ecosystem which drives competition and innovation in an open payments market.
Clearly, there are significant benefits to this: consumer and business payers get greater choice and control over their assets, SME businesses can drive better integration between their payment accounts and ERP/accounting software systems, and merchants benefit from a wider range of options when collecting payments.
Implementation will not be without its challenges however. Indeed, there are few – if any – precedents of how XS2A can work practically and operationally. Furthermore, PSD2 also sees security requirements introduced into an EU Directive for the first time, with the aim of better protecting digital transactions. The question is: how do we balance security and innovation in an open payments market?
Making XS2A work in practice at scale will require collaboration between incumbent players (banks and other PSPs) and new players (TPPs and other FinTechs). The importance of ensuring the interoperability of solutions cannot be overemphasised. For this to be done successfully, the industry needs to get organised in the coming months. First and foremost, banks and TPPs need to consider their individual positioning, while also considering potential synergy with the collaborative aspects of XS2A standardisation, harmonisation and accompanying services.
The article therefore sets out to help drive greater understanding of XS2A and the obstacles and potential benefits, in order that industry players can address the regulation and implement practical solutions.
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