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Unaware, Unprepared and Paralysed: Retailer Readiness for PSD2

February 19, 2018
One of most disruptive changes to retail technology starts on January 13th 2018, yet the general reaction from merchants appears to lie somewhere between perplexity and paralysis. PSD2 is no ordinary piece of legislation.
Designed to promote competition and innovation in  he payments industry it will have the unintended consequence of re-shaping retail technology, and the fate of European retailers.

Contents

FOREWORD (3)
RETAILERS NEED EDUCATION AND
TECHNOLOGY TO CAPITALISE ON PSD2 (4)
KEY FINDINGS (5)
WHAT IS PSD2? (6)
WHY DOES THIS MATTER FOR RETAILERS? (8)
RETAILERS: UNAWARE, UNPREPARED AND PARALYSED (9)
OPPORTUNITIES (10)
THREATS (13)
EDUCATION (14)
THE FUTURE  (15)

PSD2

Forefront

The impending shift to “open banking” through the implementation of the Second Payment Services Directive (PSD2) in Europe and, even sooner, the implementation of the Competition and Markets Authority (CMA) “remedies” in the UK, means radical change and not just in banking. For the whole retail sector, this revolution presents a wonderful opportunity to both reduce the costs of doing business and to deliver new and better services to customers.
Open banking means significant change for the retail sector, especially in payments Wired magazine recently said that it would make it possible to pay with lightning speed directly from a bank account – in effect, creating an Amazon ‘One Click Checkout’ for the entire internet.
David Birch

David Birch, Global Ambassador, Consult Hyperion

Indeed, a recent study from Icon Solutions on the post-PSD2 payments landscape estimated that such
“instant payments” from consumer to merchant bank accounts will hit €725 billion within the decade, accounting for roughly €338bn of direct eCommerce expenditure.

Retailers are being handed the ability to create their own payment products linked directly to those consumer bank accounts. Imagine having a supermarket loyalty app that can make payments too. To customers these are simple debit propositions, but the fact that they do not use the existing issuing and acquiring “rails” changes the dynamics as retailers will be able to steer consumers towards these faster, cheaper and simpler propositions

The real revolution, though, is data. In the Wiredpiece, having talked to the key players and examined the key concepts, Rowland Manthorpe draws an important conclusion : this revolution is not “just a technical fix, or even a solution specific to banking, but a new way of dealing with the twenty-first century’s most sought-after resource, personal data”. He is spot on. Identity is, as some people maintain, the new money.

With retailers able to access consumer bank account data, the sector will be able to imagine new ways of doing business. Merchants can reduce risk for financial products such as installment payments and loan origination at the POS. They can tailor products and services to more accurately meet customer needs. They can (through the inevitable deployment of machine learning) reduce fraud.

Yet as the research conducted for Consult Hyperion and CCgroup shows, half of retailers are unware of the impending changes and only one-third is ready to comply with PSD2. Surprisingly, only a third of retailers are planning to take action and even a smaller proportion regard it as an opportunity, with the majority viewing it as a threat. They are wrong!

Retailers are one of the principal groups able to take advantage of the shift to open banking and they should be planning – now – to exploit it to the full. Only with the help of the retail technology community will this be possible.


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