Of the myriad mechanisms, sectors and services that make up the global financial system, one of the fastest-growing is the payments space. From contactless cards and mobile wallets to the exciting potential of biometric data, there are all sorts of innovations having an impact on payments.
This could open up any number of opportunities for banks, payment service providers (PSPs) and consumers, but it’s also likely to create some new challenges. One big consideration for financial institutions is the changing regulatory demands that will accompany payments innovation, as we are already seeing in the EU, with the forthcoming launch of the new Payment Services Directive (PSD2), and in Singapore.
Singapore seeks a unified payments landscape
Banks and PSPs with a presence in Singapore could soon be affected by regulatory changes designed to unify an increasingly fragmented payments landscape. The Monetary Authority of Singapore (MAS) is currently consulting on proposed changes to the regulatory framework for payments and the potential establishment of a National Payments Council.
The city-state’s central bank noted that the wide range of available payment methods – which includes checks, credit and debit cards, fund transfers, stored value facilities and online platforms – offers unprecedented choice for consumers, but also creates fragmentation and division. One of the potential solutions to this is the creation of a National Payments Council to promote interoperability and the adoption of common standards.
MAS is also proposing to bring Singapore’s payment regulations – which currently span two pieces of legislation – under a single framework covering the licensing, regulation and supervision of all payment services. One of the objectives of this change is to strengthen consumer protection, while enhancing anti-money laundering standards and cyber security.
Jacqueline Loh, the central bank’s deputy managing director, said: “Payments is one of the key components of fintech and serves as a foundation for our vision of a smart financial centre. This public consultation is an important step for MAS and the payments industry to co-create the future of Singapore’s payments landscape; one where payments are swift, simple and secure, supported by streamlined regulation and inclusive governance.”
Europe prepares for PSD2
The significance of changing regulations in the payments industry will be clear for all to see in the EU over the next year or so, as financial institutions prepare for the second iteration of the Payment Services Directive. PSD2 was officially passed in November 2015, giving EU member states two years to incorporate the directive into their national laws and regulations.
The European Commission’s stated intentions with PSD2 are to create a “more integrated and efficient” European payments market and provide a level playing field for new PSPs, while promoting security and protection for consumers.
In practice, one of the most significant repercussions of this regulatory change for banks is the requirement to provide more extensive access to customer data and payment processing systems for registered third-party providers. This will be enabled through the use of application programming interfaces to provide access to data and services.
Writing in a blog for Finextra, Richard Carter of digital lending technology firm Nostrum Group noted that these new requirements represent something of a dilemma for many banks. “Either they use the regulations to create a whole new way of interacting with the customer, or they fail to seize the moment and become further dis-intermediated from the customer and ultimately become the banking rails rather than an end-customer service provider,” he wrote.
As the payments landscape continues to evolve and regulatory changes open up opportunities for new providers, one of the biggest challenges for financial institutions will be developing meaningful engagement with customers and maintaining brand loyalty. Those that are able to do so will be in a strong position to realise the potential of this fast-moving industry.