How PSD2 will open up the old cash or card question

In Ireland the biggest payments innovation question is the same as it has been for years – cash or card?

"So far the debate has been about card versus cash here. Card transactions grew 14 per cent here last year, while ATM cash transactions were stagnant. "The new payment services directive aims to open that up," says Robert Doherty, director of product at AIB Merchant Services

Payments innovation is of interest to both consumers and retailers alike. “From a consumer point of view, if I’m using a card I want the service to be quick, not cost me anything, and provide me with protection should the goods not arrive. From a merchant’s point of view, I want to get paid as quickly as possible, I want my customer to have a good customer experience and I want it to be cost effective.”

Even popular newcomers such as Revolut, Apple Pay and Google Pay all use pre-existing card company infrastructure. Alternatives to cards do exist, including the UK's Pay by Bank app, and online checkout option that lets users pay using the bank app on their phone.

Banking app payments

But by and large, Ireland hasn’t yet embraced banking app payments the way countries such as the Netherlands and parts of Scandinavia have, he says. What PSD2 does however is break down the duopoly that has grown up over the years between Mastercard and Visa.

Right now if you log on to Ticketmaster, you see Visa and Mastercard payment options. Access Tickemaster in the Netherlands and top of the option list is ideal, the leading online payment method there, that lets consumers pay online through their own bank.

“In the last 20 years the only really radical new payment to try and compete with Mastercard and Visa has been PayPal, and it could because of all the customers that came to it from Ebay,” says Doherty.

To succeed, payments innovators have to be cost effective for merchants and have scale. Consumers however expect them to be free, yet regulatory protections such as Anti Money Laundering and Know Your Customer steps all add cost and friction to disrupters.

It won't put a stop to their gallop however. Technology disruption is already quickly changing the banking landscape, "enabling new business models to emerge and in many cases lowering the barriers to entry for start-ups," says Owen Lewis, partner, management consulting, KPMG in Ireland.

“Fintechs are often focused on solving a specific issue that is seen as slow, difficult or costly for customers. Partnerships between start-ups and established banks can be mutually beneficial to both organisations in bringing these ideas to life and in doing so passing on this value to a bank’s customer base.”

Regulators

Banking regulators are facilitating this. “Regulation has a key role to play, with opportunities for the regulatory bodies to stimulate innovation domestically through safe and collaborative sand-box environments enabling banking evolution,” he says.

Customer expectations are driving it. “At the point of sale, customers are looking for frictionless, safe and instant payment methods with flexible options on where and how to draw on credit or personal funds. (They) are becoming more aware of risks and are looking toward trusted brands to take care of speed and safety for them,” says Lewis.

This has changed the landscape in other ways too. Whereas at the earliest stages of fintech development, legacy banks and fintechs disrupters were posited as opponents, increasingly their interests are aligned.

“We are seeing the extended banking ecosystem collaborating to deliver better value for customers,” says Lewis.

“Competition between fintechs and established banks has not gone away but increasingly banks are partnering with and, or, sourcing capability from fintechs to maximise the value of innovation for customers.”