Wednesday, May 9, 2018
Payments analysts are commenting on a joint initiative by Deutsche Bank and the International Air Transport Association, a global airline trade association. On May 7, 2018, the organizations disclosed plans to test a direct payment scheme enabling consumers to pay airlines from Deutsche Bank accounts. Representatives from both organizations said the pilot reflects the spirit of the European Union's recently revised Payment Services Directive (PSD2). The PSD2 is regulatory guidance designed to promote innovation and efficiencies in the banking sector.
Javier Orejas, head of banking EMEA and the Americas at IATA, said the new payment method will use two-factor authentication and bypass credit and debit card rails, thereby improving speed, security and transparency. "The direct payment model promises significant cost savings and efficiency gains for our members," Orejas stated. "With airlines paying huge amounts for transaction fees and compliance – in addition to losses sustained due to fraud – this is a highly valuable innovation for the industry."
Shahrokh Moinian, global head of cash products at Deutsche Bank added, "This solution marks our strong commitment to innovation and our desire to transform regulatory initiatives into opportunities for our major clients involved in the B2C industries – starting with IATA."
PSD2 guidelines, part of a broader open banking movement, require European banks to open their customer account data to authorized third-party service providers. Proponents say making bank data widely available will foster competition and collaboration among banks and fintechs.
"PSD2 or the Revised Payment Services Directive is a European Union regulation that is forcing banks to 'open up' access to their payment services for new third-party payment providers to have the ability to create new value propositions for the market," said Mark Ranta, head of digital banking solutions at ACI Worldwide. "The regulation is an attempt to even the playing field for innovation and allow the best ideas a chance to gain market share."
Rod Hometh, partner at RPY Innovations, a payment strategies consulting firm, said the PSD2 attempts to reduce barriers for third-party payment service providers entering the market while enhancing and standardizing payment security requirements. "Simply put, the idea is to get the payments ecosystem players in the region working together easily while protecting consumers," he stated. "This requires financial institutions and PSPs to participate in a more open banking system via open APIs and share data on a level not seen before."
Hometh expects Asia, and possibly the United States, to emulate the paradigm shift toward open banking. U.S. financial institutions will be watching closely, he noted, and if the PSD2 and similar initiatives accelerate smoothly, they will need to develop corresponding and compatible procedures. "After all, multinational banking powerhouses will find maintaining multiple regional policies a significant drag on the current globalization of the fintech sector," he said. "Eventually, not utilizing the new open-banking APIs could prove to be a barrier to expansion."
Ranta said the PSD2, paired with other real-time payment options, such as the U.K.'s Faster Pay, is creating opportunities to offer real-time, direct-from-account payment schemes. He expects these developments to lead to similar value propositions in the United States, where credit card extinction has become a trending topic among industry analysts.
"Traditional barriers to accepting payments have all but disappeared as the emergence of mobile technology has accelerated," Ranta said. "Today, in the U.S. and globally, it is the exception when a consumer doesn't have access to a smart phone at the POS, so the ability to change the experience is already underway."
Ranta has observed steady growth in mobile wallet-initiated payments, notably WeChat and Alipay in Asia and Apple Pay, Samsung Pay and Walmart Pay in the United States. He noted that the next logical step in this evolution would be to change the payment instrument from credit/debit to a direct from account method. "In the EU, this is a mandated regulation," he said. "In the U.S., it will be driven by competition."
"We have been tracking PSD2 and feel it will absolutely have an impact on the EU acquiring business although likely not the U.S. acquiring business," added Brion Bonkowski, CEO at Tern Commerce LLC. "The advantage of PSD2 is real-time visibility into account holders' bank balances, something the U.S. does not have with our ACH network. In general, I think it will be some time before the credit and debit rails are bypassed for bank-based payments."
Bonkowski said a stored value program, deployed separately from credit and debit card rails and offering consumer incentives and lowered fees, could potentially sway U.S. consumers. He said it would take a long time for the United States to satisfy both those requirements on a large scale.
Hometh suggested certain kinds of transactions in high-ticket, low-volume sectors, are ripe for new payment disruption. He cited automobile down payments, where few credit and debit cards are accepted today, and person-to-person micro payments at the other end of the spectrum.
While he believes credit and debit processes are stable and pervasive enough to remain foundational well into the future, Hometh remarked that demand for increased payments security and "socialization" is driving the latest round of innovation. "Indeed, payments ecosystems are seeing increased investment by new entrants wanting to push the boundaries," he stated. "Same-day payments, for example, have risen quickly from a non-consideration to inevitable."
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