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PSD2 and IFR: Opportunities and risks for payments service providers in the EU

How established players and new entrants can innovate and compete in the post-PSD2 and IFR regime.

Overview

The two PSD2-enabled services—Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs)—will fuel competition in EU’s payments landscape. The Interchange Fee Regulation (IFR), on the other hand, will introduce fee caps, unblend interchange and scheme fees and abolish restrictions on honour-all-cards rules and network licensing, resulting in redistribution of costs of and revenues from card transactions.

With the proliferation of Alternative Payment Methods (APMs) in the European Union, the card payments share of the e-commerce market has steadily declined from 59 percent in 2012 to 51 percent in 2014. In addition, research suggests that APMs like iDeal (a bank transfer solution) will help banks to scale, dominate the payments space and limit the growth of cards and e-wallets.

Both PSD2 and IFR will lay the foundation for disruptive innovation by network operators, card issuing banks and merchant acquirers. Consumers can expect online and in-store payments to be revolutionised by PISP integration. In addition, new digital lending solutions will integrate AISPs and PISPs to offer point-of-sale finance and deferred payment options—wherein consumers can pay for a purchase via multiple accounts and on credit.

Network operators will enter the interbank payments market that the third-party payment providers (TPPs) can leverage effectively. While interbank payments in the United Kingdom are near real-time, network operators in the rest of Europe can stay relevant in the market by leveraging their relationships with banks and issuers to establish new real-time interbank schemes.

How payments regulation will disrupt and reshape Europe’s card payments ecosystem

How payments regulation will disrupt and reshape Europe’s card payments ecosystem

DOWNLOAD HOW PAYMENTS REGULATION WILL DISRUPT AND RESHAPE EUROPE’S CARD PAYMENTS ECOSYSTEM [PDF]

Key Findings/Analysis

Key findings about how PSD2 and IFR will impact the card payments landscape in the EU:

  • With PSD2 and IFR regulations, card payments stand to lose out to APMs, TPPs and bank-transfer solutions like iDeal.

  • IFR’s increased price transparency will also increase competition and bring down margins for merchant acquirers.

  • Due to a cap on interchange fees, issuers will move away from loyalty programmes or start charging annual or monthly fees.

  • IFR, in combination with PSD2, may enable merchants to avoid card transactions and the associated costs completely.

"EU’s eCom card payments share has declined from 59 percent in 2012 to 51 percent in 2014 due to APMs."

Recommendations



Four recommendations for established players to stay relevant in the payments market post PSD2 and IFR implementation:

1

Leverage existing market presence: Established players can leverage consumer trust to stay relevant post IFR implementation.

2

Innovate payment products and offerings: Issuing banks and other providers must innovate payments products to exceed customers' expectations or lose out to AISPs.

3

Make use of IFR exemptions: Issuing banks can benefit by migrating SMEs from consumer to corporate products like corporate cards, which are exempt from IFR.

4

Become PISPs and AISPs: To stay relevant and mitigate losses, payments services providers can start offering PISP and AISP services to customers.


DOWNLOAD HOW PAYMENTS REGULATION WILL DISRUPT AND RESHAPE EUROPE’S CARD PAYMENTS ECOSYSTEM [PDF]