By Chris Jones, PSE Consulting

The late implementation of the Payment Services Directive is now almost a certainty. However, it is not the credit crisis causing the delay but national regulators dragging their collective feet.

In February 2009, the UK was the first European nation to pass the Payment Services Directive (PSD) into national law. Within the context of this milestone, PSE Consulting has carried out a second survey of European Union players designed to assess the current status of implementation and understand exactly what is causing concern for payment service providers. The survey was completed by 37 senior personnel from across the European Union and encom­passed a wide range of institutions from banks to money remittance organizations and banking associations.

The clearest conclusion from the survey is the growing concern over implementation timelines. Figure 1 illustrates how institutions of all shapes and sizes are increasingly uncertain of their ability to be compliant by Nov. 1, 2009. They are now substantially less sure the market will be compliant. Not only do almost 25 percent of survey respondents believe they are unlikely to be ready by November 2009 (whereas in June 2008, 98 percent of respondents were confident that they would be ready), but there are increasing concerns over smaller institutions’ ability to deliver (see Figure 1).

This reassessment may reflect a reduction in confidence as the details of the PSD are analyzed or as a result of changes in the external market. Some commentators point to the credit crunch and the deepening economic recession as causes for this delay. Indeed, there is some evidence that national banking federations in southern Europe have argued with the commission that this is a reason to delay. However PSE’s research does not support this analysis. In the most recent survey, PSE asked to what extent the current economic climate was affecting their timetables. About 85 percent responded that it would have little or no impact on their plans. In addition, (see Figure 2) the majority interviewed have projects under way, with around 40 percent having completed an impact assessment and more than a third with an allocated budget.



So what is causing players to reassess the likelihood of achieving the deadline? Why is the market stalling with only months to go?

Figure 2 provides an early indication, with nearly 40 percent of respondents indicating that they are awaiting  national implementation. More light is cast on this topic by looking at respondents’ views on when the final legislation may be in place (see Figure 3).



Almost 70 percent of those questioned believed that the legislation will not  be available until after Q3 2009. Thus, it appears that local regulators are creating much of the delay as local players wait for legislation to be  finalized. Figure 4 indicates that although regulators are providing  support with guidance notes and input to drafting, only 20 percent of those questioned thought they would be given sufficient time to implement the PSD. In addition, almost half did not believe that their organization had been given sufficient clarification on key issues by the regulators.  National regulators have had the PSD documents since December 2006. Many are likely to take more than 18 months to transpose the directive, leaving payment providers with less than six months to comply. 

Worries over the implementation timetable are also linked to a number of key questions, which are still causing payment service providers concerns. Figure 5 indicates some of the vital topics that remain unresolved.



The scope and definition of  transaction accounts, merchant settlement times and the treatment of exchange rates are still a major area of uncertainty for more than half of those who participated. If EU regulators wish for the market to be ready in time, it is vital that they all become more proactive  in their support of payment service providers.

Given the uncertainty, what actions  can payment service providers take? PSE has worked with a wide range of institutions across all of Europe’s major markets to look at the implementation and strategic opportunities presented by the PSD. As a result, we have developed a comprehensive understanding of implementation best practices. Figure 6 highlights some of the respondents’ areas of greatest concern that support our assessment of how the main issues need to be addressed. Updating merchant  terms and conditions and the ability to correct errors on accounts are two of the most important and complex tasks for which action needs to be taken.



Underlying many of the respondents’ concerns is the need to update IT and operational infrastructure. This was highlighted by more than a  quarter of respondents as their most important issue. Given the long IT lead times, there are a  number of key systems questions that players should ask internally:

• Which components of your  platform are batch or real time, and can they support immediate value dating and funds availability upon receipt of funds?
• Can your branch, ATMs, call centers and online channels support immediate funds availability for cash deposits and in-house transfers?
• Does your platform record the  transaction details and authoriza­tions (which may be completed by PIN, voice, signature, etc)? How long is data retained, and how easily can it be retrieved, analyzed and stored?
  

As well as focusing internally, it is also vital to ensure that suppliers and vendors are equally well prepared for PSD implementation. Questions suppliers should answer are:

• When will they be fully compliant? What commitments to delivery and service provisions are provided?
• Do they have a PSD compliance program in place? What support will they provide during the compliance process? Who will coordinate with your PSD plans?
• Who will fund the costs of compliance and implementation programs?
  

In conclusion, there is still much  to do to prepare for the PSD. It is, however, imperative that local regulators speed up the process of implementation. Given the attention currently focused on topics such as interchange, regulators first need to fulfill their PSD responsibilities before claiming the industry is not compliant in other areas of European legislation. PSE Consulting strongly recommends that all players lobby their regulator to ensure they accelerate the local transposition of the directive.

SURVEY METHODOLOGY: The analysis included in this article is based on a survey completed by PSE Consulting in 2009. It included the responses from 37 institutions across the EU’s major payments markets and includes banks, foreign currency providers, money transmitters and interbank associations.

About the Author

Chris Jones is a principal  consultant with more than 11 years of experience working for PSE Consulting and Accenture. He has worked for many of the major mobile telecommunication  companies, assisting in developing their business strategies and implementing change programmes and the use of mobile technology for micro, Internet and physical world payments.