When it was announced, PSD2 (Second Payment Services Directive) was the biggest change in banking in decades, particularly for payments.
By opening up banks’ account infrastructure and associated data, PSD2 aimed to make it possible to pay directly from a bank account through a third-party. The idea was to have faster, cheaper, more customer-oriented and flexible payment services, backed by appropriate security, creating a harmonised, competitive, borderless payment ecosystem.
Some elements have been successful, with banking data much more available than before and third-parties able to access transaction data, create user profiles and provide insights for consumers. Providing the right access and functionality for payment initiation, however, remains much more of a challenge – this is because payments, especially in the B2C domain, are much more complex:
1-They’re time-critical, with any delays in initiation, authorization or clearing and settlement slowing down the transaction process, especially for retail.
2-Payments are an existential capability for merchants, with any risk or downtime causing huge commercial challenges for sellers.
3-The bar for success is high, with even a small amount of failed payments affecting trust in the system.
4-Security and compliance require a large amount of checks, along with robust infrastructure and review, with PSD2 reinforcing the need for strong customer authentication.
5-Special transaction types, such as seamless refunds, are must-haves in certain merchant categories.
The result is that the customer experience of A2A payments initiated via standard PSD2 APIs is generally underwhelming, with gaps in penetration by geography and industry, particularly for the in-store environment (POS).