Simon Pepper, Head of Product at Tola Mobile:
PSD2 came into effect on Saturday 13th January 2018, the revised second Payment Services Directive (PSD2) is set to cause disruption within the European payments market. The imminent update in legislation aims to create a level playing field for both traditional and innovative payment providers (PSPs), whilst offering increased security for all consumers when completing transactions. For mobile payments in particular, PSD2 will impose a number of changes which will have a direct impact on the way transactions are both conducted and authorised.
The biggest impact within the mobile payments space will be the application of spending limits the Mobile Phone Network Operators (MNOs) will have to impose on each of their subscribers. For MNO’s, and other companies wishing to operate under their exemption of PSD2, a subscriber can only be charged a maximum amount of £40 per transaction, with the overall monthly spending limit for services capped at £240 per subscriber. This will somewhat restrict the available spend to third party service providers under that exemption for the MNO, who are connected to the MNOs and utilise the existing billing relationship with the subscriber. In addition, the exemption is limited to the purchase of digital goods, voice services, e-tickets and charitable donations.
These changes also provide a clear differentiator for the companies who hold an E-Money licence. Licensed entities can now provision the sale of physical goods for third party merchants using the mobile payment channel - but these licenced payment transactions are not subject to the spending limits imposed by PSD2 on the MNOs.
PSD2 also calls for Strong Customer Authentication (SCA) to be implemented on all banking transactions, as concerns over consumer security rise and the adoption rate of electronic transactions increases globally. The new requirement for two-factor authentication on every payment will therefore introduce a level of payment authentication, authorisation, and transparency not previously seen in the mobile payments space.
This will bring the emerging mobile payments much closer to that of credit cards – hopefully introducing the levels of trust now associated with credit card payments, but with the ease of use and convenience of using your mobile phone number to pay for goods and services which is now enhanced by the utility of modern mobile devices to offer multiple means of payment verification. As a result, we could very well see a rise in the use of SMS route or a mobile device-based app, or the biometric verification devices on some smartphones, for authentication or signing transactions.
By providing a mobile phone number as the ‘billing identifier’ for transactions, consumers can avoid the process of using lengthy credit card details, which ultimately improves the entire payment journey and the required two-factor authentication keeping the subscriber safe. Not only is this convenience fundamental to the increase in uptake of mobile money worldwide, it also presents a further opportunity for new players wanting to disrupt in the PSD2 era.
Despite being well anticipated by the industry and with many updates having already been implemented over the last few months, the formal introduction PSD2 will certainly prove to be a catalyst for change not only for the mobile payments sector, but for all payment services operating within the European market.
On the whole, the payments industry has not encountered much change over the course of 2017. Payment services operating within Europe have been adapting their services in preparation for the introduction of the revised second Payments Directive (PSD2) in January.
However, this update in legislation has been well anticipated by the industry, and while many of these changes have been rolled out slowly this year, they are unlikely to fully disrupt the sector until the Directive takes effect.
Mass market adoption
The fundamental requirements for enabling mass market adoption of mobile payments have also remained the same, with strong customer authentication, authorisation and payment transparency remaining at the forefront of all developments in technology and services across the sector.
The upcoming changes in light of PSD2 will, however, see payments providers place further value on these factors, as concerns over consumer security increase and the adoption rate of mobile money accounts amongst consumers increases globally.
In 2018, we hope to see mobile payments become as widely adopted across the UK and Europe as mobile wallet transactions across sub-Saharan Africa.
Throughout this region, payments via mobile money accounts are rapidly overtaking physical cash as the dominant method, and are diminishing the mass adoption of bank and credit cards for daily use.
More consumers across Europe are now realising the benefits of paying directly via their mobile. Merchants are therefore increasingly looking to mobile payment providers to help them replace existing cumbersome payment processes with the simplicity of using a mobile phone number, to allow consumers to verify and make instant purchases for goods and services more securely.
By using a mobile phone number as the ‘billing identifier’ for a transaction, consumers are able to eliminate the process of entering lengthy credit card details, which ultimately improves the entire payment journey.
Not only is the convenience of this process fundamental to the increase in uptake of mobile money worldwide, it also presents a clear opportunity for new players wanting to disrupt in the current market.
The nature of mobile payments will also allow merchants and service providers to maximise sales, by tapping into the downturn in consumer purchase rates which typically occurs towards the end of each month.
Charging purchases against a mobile money account enables consumers to fill the gap in the lack of available funds during the last two weeks before payday, giving them the opportunity to complete more successful purchases.
As a result, we may well see mobile payments act as a catalyst for change in consumer shopping habits over the next year, whilst helping more merchants to continue driving sales.