Retail companies could become the new face of everyday financial transactions once the Revised Payments Services Directive, known as PSD2, goes into effect in the European Union in January.
PSD2 requires banks to grant third-party providers – such as retail merchants – access to a consumer’s online account/payment services in a regulated and secure way, with the consumer’s consent. The goal is to drive increased competition, innovation and transparency across the European payments market while enhancing the security of Internet payments and account access.
As part of the study, Accenture surveyed nearly 80 payments executives at large retail companies and banks across Europe to determine how they will respond to the new regulations. The research found that nearly one-third of the retail companies surveyed will be able to plug in directly to banks to obtain consumer information and initiate payments by the January 2018 PSD2 deadline requiring banks to provide access to third-party providers, and nearly 90 percent of the retailers will be able to do so by 2019.
The opening up of banks’ networks to non-bank third parties, known as ‘Open Banking,’ will let consumers transfer funds, compare products and manage their accounts outside of the banking environment. While Open Banking will help banks reach new customers by enabling them to offer plug-and-play financial products through third parties, such as retailers and financial technology (fintech) companies, it will also give retailers the opportunity to accept payments directly from a consumer’s financial institution without the need for an intermediary, as well as let them access a consumer’s financial data if the consumer consents to share that information.
“Open Banking is an opportunity for retailers to provide a better customer experience through flexible payment initiation and faster refunds, and to increase cash flow by bypassing card networks and fees and reducing fraud and chargebacks,” said Jeremy Light, who leads Accenture’s payments practice in Europe.
“Ultimately, retailers will have to determine whether they will get significant value by creating their own payment capability, such as a purchasing app combining payments and commerce, or if they are better off partnering with an intermediary that can create a universal capability connected to the banks to continue ensuring frictionless payments in this new environment.”
Open Banking will let retailers and banks work together directly, without the need for intermediaries such as gateways and merchant acquirers. One way in which retailers will access customer data from banks in a secure and controlled setting is through application programming interfaces (APIs). While APIs would enable retailers to reduce or eliminate card transaction fees, they would also let banks offer additional services, such as point-of-sale loans or identity verification, directly through third parties.
Among the ways in which the retailers surveyed said they plan to use APIs are to:
- access customers’ financial information so they can tailor products (74% of retailers surveyed);
- initiate payments directly with banks to negotiate better transaction fees (53%);
- reduce fraud (53%); and
- generate relevant point-of-sale offers and discounts based on consumer spending habits (51%).
Retailers also expect Open Banking to drive significant in-store innovation. The APIs that retailers cited most often as ones they plan to imbed into their existing point-of-sale channels – enabling consumers to access information directly from the retailer – are bank-account-balance display (cited by 67% of respondents), payment initiation (63%) and bank-account transaction history (60%).
“The regulations in Europe are intended to create more competition for incumbent banks from FinTechs and retailers, and therefore more options for consumers,” said Alan McIntyre, a senior managing director at Accenture and head of its Banking practice globally.
“The big question is whether consumers will be willing to share their financial data with outside companies, which they’ve typically been hesitant to do because of privacy and security concerns. However, if retailers use their loyalty programs to incentivize customers to initiate payments directly through their sales channels, the first place that banks will likely feel the impact is in the decline of debit-card transaction.
“At the same time, if retailers want to truly evolve the in-store consumer experience, they will need to add innovative options, such as allowing customers to pay automatically as they leave the store using biometric authentication.”