More security, less fraud, a renewed payment experience... DSP2 and the instant transfer were supposed to bring about a major transformation, especially for payment service providers. But what is it really?
Whether it's called instant transfer, instant payment or Payment Initiation Service, this payment method introduced by DSP2 offers the possibility of initiating a bank transfer on behalf of another person, provided that the latter gives his prior consent. In practice, an online store can offer its customers an alternative payment experience based on the transfer. While it theoretically came into effect in 2018, instant transfer is far from having become a part of consumers' daily lives. "The main promise associated with PSD2 and instant transfer for eCommerce players is the absence of bank card fees. There is also no interchange, which typically varies between 0.2 and 0.3 percent of the amounts. The key expectation of merchants is to reduce their costs," says Didier Barré, Portfolio Manager of Worldline's Merchant Services business. But that's not all! Behind the instant transfer, there is also the guarantee of payment for the beneficiary, optimized management of the customer's budget or cash flow, immediate availability of funds... However, despite this laudatory panorama, adoption is far from being widespread... According to the latest edition of the Observatoire Cetelem's Zooms, two thirds of French consumers (66%) prefer the card for their online purchases, while the remaining 34% use an e-wallet application such as Apple Pay, Google Pay, Paypal...
Instantaneous transfers: advantages (still) limited to a few specific uses
To date, the initiation of transfers is still limited to niche uses in both B2B and B2C. Buying a second-hand car, travelling to the end of the world, or in the B2B sector, where not all professionals have a bank card, and where ceilings can be a problem. In these cases, the instant transfer provides a relevant answer. Because it can be bidirectional, it can also be used to reimburse a customer quickly in case of product returns. The law requires that a refund be made on the original payment method, the instant transfer can be used if the consumer has been warned, in advance, that he could be refunded by other means. In this context, Instant Payment is, once again, an interesting avenue because, in less than 10 seconds, the customer is notified of the arrival of the funds. "The bank card does not offer this immediacy," says Vincent Lenglet, Head of product at Monext. If the DSP2 transfer has not really kept its promises in terms of lower costs, it has not succeeded in dethroning the bank card in consumer usage either. "The initiation of transfers is still very clearly in its infancy. The reason: a total lack of universality," comments Vincent Lenglet.
Open banking: Between security and information sharing
The level of security guaranteed by the instant transfer is linked to the double authentication defined by the DSP2. To pay his bill, the debtor is redirected to his secure bank space. After a first authentication to access it, he identifies himself again to validate the transfer and the payment is made. Thanks to Open Banking, forget the ordeal of entering the IBAN and processing paper money orders. "Instant Payment is also a step forward in the dematerialization of payments," confirms Didier Barré. Finally, compared to the classic transfer, the DSP2 transfer allows the transmission of numerous parameters such as the invoice number and the wording to facilitate and automate the bank reconciliation, another advantage that mainly attracts B2B players. Monext, Worldline, Adyen, Docaposte with its BudgetInsight solution, Younited, Mollie or Stripe on the BNPL side..., all the electronic payment players are mobilizing. The world of payment and fintechs is in turmoil," confirms Benjamin Lang, Country Manager for Mollie. In fact, it was the regulator's ambition with PSD2 and the related Open Banking to encourage competition through innovation. This has revealed the technological gap between the banking sector and the electronic payment players. A technological gap that is one of the obstacles to the wider adoption of instant transfers...
Obstacles to be overcome... including in physical commerce
If instant transfers are struggling to take off, it's not just because bankcards are culturally ingrained in consumer habits. With little desire to innovate and a reluctance to play the game of a renewed payment experience, the banking sector initially embraced DSP2 and Instant payment without much enthusiasm. "Especially since some banks continue to charge for instant payment, which is a major barrier to adoption," notes Didier Barré. Eventually, free instant payment will probably become the norm, but until the European regulator prohibits charging for such a service, it will take some time. Neobanks and online banks, not surprisingly, are very mature. "Some historical banking players are doing very well, others on the other hand are terribly late and redirect the consumer, including on mobile, to a web page in responsive design. The experience is very degraded... This is acceptable when the consumer buys a car once every 3 or 4 years. For everyday purchases, it's unthinkable," says Vincent Lenglet. The challenge is all the more decisive as physical commerce is also impacted by these new realities. In the case of a "scan and go" made at the point of sale, a customer may find himself confronted with a DSP2 challenge, leading him to validate his payment via his banking app, while he is living an experience in a physical store. Indeed, this type of practice, which is developing in many retailers, creates an automatic switch to a VAD payment process. The multiplication of uses supported by DPS2 makes frictionless an increasingly decisive issue and requires a rethinking of the entire payment experience. "All of the transformations brought about by DSP2 create a new need: the homogenization of the user experience," says Didier Barré. This standardization is still a work in progress.
Data is more central than ever
For the end consumer, DSP2 has not yet had a truly perceptible impact. Already familiar with 3DSv1 and then 3DSv2, the entry into force of PSD2 has not changed their habits. However, the new directive redefines the contours of the interactions between the payment players. Until now, each merchant could create its own scoring rules to decide whether or not to disengage 3DS. They relied on anti-fraud engines, of course, but they still had control. With DSP2, the issuer is in the loop, as is the acquirer. This requires a combination of merchant, acquirer and issuer scoring variables. The more information a merchant shares with us, the more acceptance progresses," says Vincent Lenglet. The granularity of the information that a merchant shares with its PSP is crucial to maximizing the acceptance rate. The quantity and quality of the data are decisive in order not to degrade the transformation!
The challenge: better integration of data, which is the focus of all innovation projects. "The benefits of DSP2 in securing payments are undeniable, but data management is more crucial than ever to control risk management without degrading the customer experience," says Philippe de Passorio, Managing Director of Adyen France and Italy, who is counting on machine learning to constantly refine the fight against fraud. If DSP2 has not yet delivered its full potential, eyes are already turning to tomorrow. While PSD3 is already in the works, the entire ecosystem is paying attention. The development of subscription-based payments, with a focus on recurring payments, and the need to automatically update expired payment methods, are all new areas for PSP innovation...
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