OECD Meeting - Key Messages

I was invited amongst a select group of 6 speakers to join the OECD Committee on Financial Markets’ Experts Group on Finance and Digitalisation in Paris.

The session was held to have OECD member delegates hear perspectives from the private sector (banks, FinTechs and consultations) on BigTech and digitalisation.

The message I relayed was:

1. PSD2 was well intended, but has left one hot mess. The market is defragmented more than ever, despite the legislator’s efforts for full harmonisation. Regulators differ in opinion between which transactions fall under SCA, what constitutes a payment account and whether TPPs should comply with AML obligations.
2. Current payment services definitions are challenging to use and interpret, as it is out of date with technology.
3. EBA is effectively regulating the payments market as how they have been regulating banks over the last years. However, non-banking players have far less resources and budget for compliance matters. Let’s not forget Payment Institutions only became regulated a little over a decade ago, while banks have been for hundreds of years!
4. PSD2 adoption is lagging because of lack of customer awareness campaign at EU level. Industry was talking about it already for 4 years. Target market had no clue what was coming for them. Stripe research showed that 3 out of 5 businesses with under 100 employees are still unfamiliar with SCA today. Emotions play a key role. 73 % of consumers are not aware of the new authentication requirements and 74% of generation Z shoppers have abandoned an online purchase at checkout in past 6 months due to a bad experience. We need to have a communication campaign that runs across the whole ecosystem.
5. Do not regulate the payments market further. It takes too long and legislation should not continue to drive innovation in the market. The market has been given an incentive to open up, let the market players pick it up and run with it. The payments landscape remains dynamic and will continue to do so for the foreseeable future.
6. Need guidance at EU level to harmonize and need it now. The interpretation of what constitutes payment services while considering the technological developments over the years is an important example where guidance is needed. The number of payment players involved in one single payment transaction has grown significantly. The Q&A guidance of the European Commission on PSD1 needs updating, while the EBA does not consider it within its remit to answer this kind of interpretative questions. This needs to be done sooner rather than later, to address the increasing fragmentation currently hitting the payment landscape.

What do you think the OECD should hear about PSD2, the current landscape and digitalization? Leave your comments below.