What's up with all these rule "overhauls" I've been hearing about lately that are supposed to change the world for European consumers and investors? It's certainly been a case of death by acronym trying to keep up with the dump of "consumer benefitting" legislation we've witnessed in Europe in the last few weeks.
First, there was PRIIPS (Packaged Retail Investment and Insurance Products regulation) introduced on January 1st. That aimed at making it easier for investors to compare products.
MiFID II (Markets in Financial Instruments Directive), which came into force on January 3rd, is a 7,000-page tome that is supposed to increase transparency and investor protections in financial markets and help to avoid some of the problems of the last market crash.
And then, on Saturday, the we had the launch of – wait for it – PSD2 (Payment Services Directive2).
PSD2? What’s that all about?
Basically, these are new rules aimed at breaking up banks’ monopoly of the payments system in Europe. They facilitate regulated companies to enter or continue in the market for carrying out payments for goods and services. It’s ultimately aimed at making it cheaper for consumers and retailers to do business.
Can you give me some specifics?
First, the rules have made it illegal since Saturday for businesses in the EU to charge customers extra – either in-store or online – for using credit or debit cards or electronic payment methods such as Apple Pay and PayPal. The European Commission reckons this will save people across the EU a total of about €550 million a year.
In cases of unauthorised payments being carried out on a payer’s account, the maximum liability on that person has been reduced to €50 from €150, unless they are directly responsible for the fraud or gross negligence.
Separately, in recent years, new firms have cropped up in the area of internet payments, allowing consumers pay instantly for online shopping without the need for a credit card (the EU estimates that around 60 per cent of the population of the region don’t have a credit card). The new rules allow for these firms to be regulated at EU level.
The rules will also force banks to open up their data, allowing "fintech" companies such as Money Dashboard and Moneybox, as well as retail groups like Amazon and Facebook access both account and transaction information – with the consumer's permission, of course. The aim is to give consumers more choice when making payments for products and services and, ultimately, make the whole process cheaper.
What will these firms be able to do?
The new regulations introduce two types of players to the market. Warning: two more acronyms to get your head around. The first category is made up of account information service providers (AISPs). These will be able to analyse a user’s spending behaviour or allow a person to see a number of bank accounts on one screen. The objective is to allow people make more informed financial choices.
The second type of firm is a payment initiation service provider (PISP), which can initiate a payment on behalf of a user and pass the instruction to the bank.
Will that give these payments firms access to all sort personal data?
Consumers are in control here. The new rules allow individuals to decide what data can be shared, and for what purpose. Additional legislation, the General Data Protection Regulation (or GDPR for acronym fans) will force most authorised PSD2 firms to improve their data and cyber technologies to cope with increasingly sophisticated cyber fraud techniques. Tougher customer identification of online payments will be introduced from the second half of next year.
Should banks be quaking in their boots?
They should, according to most commentators. While PSD2 firms will not be allowed to take deposits from people or make loans, bypassing banks means that debit or credit cards will not be necessary for their customers’ online transactions.
While some say the new rules will ultimately spell the end of the high street bank in the long-term, others believe that it will be much more of a slow burn.
“We, like everybody in this industry, don’t know exactly which direction it will go,” Karina McTeague, director of retail banking supervision at the UK Financial Conduct Authority, told Reuters last week.