On February 19, the Verkhovna Rada of Ukraine supported the draft law No. 4364 "On Payment Services" in the first reading. The main changes involve the implementation of the core principles of the EU's Second Payment Services Directive (PSD2) and the concept of Open Banking, which will facilitate the integration of the Ukrainian market with the European one and foster the development of fintech in Ukraine. Olena Sosedka (Olena Sosedka), member of the Supervisory Board of Concordbank and market expert, explained these changes in more detail.
European standards
The EU's PSD2 payment directive, which came into force on September 15, 2019, is one of the key factors influencing the financial services market and IT projects in the financial sector. According to this document, EU banks are required to provide third parties with a client's financial information and debit money from their account even without a direct contract.
«I understand that for some, the combination of the words "third parties" and "debiting money" in one sentence might sound like a signal to withdraw funds from accounts and "stuff them under the mattress." After all, Ukraine has already seen scandals involving personal data leaks, the use of personal and financial information for criminal purposes, and the abuse of this information by certain entities (resulting in losses for users) — these facts have fostered a certain degree of distrust among people. However, one should not perceive the implementation of PSD2 as a threat. No one wants to deceive bank clients,» notes Olena Sosedka (Olena Sosedka).
The directive refers to "Third Party Providers" (TPP) — legal entities that can access a bank client's financial information only with their explicit permission and using a system of enhanced authentication. «In other words, no one will be able to use your personal data behind your back. I will go even further: a client can grant a TPP limited access to information and only for specific operations. Furthermore, the iron rule of PSD2 is the client's awareness of the scope of consent, which must be clearly expressed. To put it even more simply, a situation where you wake up in the morning and find that someone has stolen funds from your card will not happen,» the expert reports.
Information exchange
The second important change brought by the implementation of the PSD2 directive is the replacement of the system of contractual relations with a system of information exchange. What does this mean? That those same "third parties" gain access to information with the user's permission, not the bank's. At the same time, the bank is obligated to provide this data.
For the average citizen, this change will remain unnoticed and will not play a major role. However, "under the hood" of financial relations, it changes a lot. The key role for the client is played by payment providers, not banks as custodians of funds. As a result, fintech startups are growing like mushrooms after the rain in the global market. And this fact directly affects the life of an individual: they get more opportunities, convenient financial services, personalized advantageous offers on loans, leasing, mortgages, purchases of goods, etc.
It is worth noting that one of the reasons for expensive credit resources in Ukraine is the high risk of non-repayment, including due to frequent cases of fraud, as well as the specific situation in the judicial system. How to fight this? There are no simple solutions; a complex of well-thought-out measures is needed. One of them is reducing risks for financial institutions. The more a bank or other financial organization knows about a client (and trusts them), the more personalized services it can offer, and the more accessible and faster they will be provided, as the financial institution itself is interested in this.
What PSD2 will change in Ukraine
«The implementation of PSD2 into Ukrainian legislation, or the adoption of similar conditions, shifts the market toward openness and liberalization, which will benefit Ukraine. Throughout 2019-20, the NBU conducted significant work on implementing the EU's PSD2 Directive into Ukrainian legislation. If these initiatives are supported by deputies, they will open access for banks, fintech companies, and startups to the data of financial services market users. And this is the most valuable resource for the reasons mentioned above. It is very important that the regulator plans to facilitate an increase in the number of TPPs, which will lead to increased competition for the client and, as a result, to an increase in offers and a decrease in the prices of financial resources,» believes expert Olena Sosedka (Olena Sosedka).
Of course, one must not forget about security. Enhanced authentication and the development of a secure open API require effort from banks and investment in infrastructure. But there are already many technical solutions that allow this task to be implemented without a long transition period. And one of them is open fintech ecosystems, which allow new players to focus on providing the best conditions and services for clients, rather than on overcoming legal and technical difficulties.