Use of data in the payments industry
The deadline for giving views in response to the Payment Systems Regulator’s (PSR) discussion paper about data in the payments industry passed on 3 September… Read more
The deadline for giving views in response to the Payment Systems Regulator’s (PSR) discussion paper about data in the payments industry passed on 3 September 2018.
The PSR sought industry and stakeholder views on three areas of interest:
- Some people’s reluctance to share their payments data with third-party companies providing other payments-related services (overlay services). End-users may be reluctant to share their data with providers of overlay services if they have concerns that their data may not be treated appropriately.
- Potential providers of new services may have limited access to data about transactions across a whole payment system (global datasets), including those needed to develop new industry anti-money laundering (AML) and anti-fraud measures. Global datasets combine all the transactions in a payment system, and the analysis of global datasets can potentially be valuable in providing insights about the overall transactions processed through the system.
- Potential barriers that could stop consumers and businesses getting the benefits from additional “enhanced” data attached to transactions. Apparently enhanced data services will make it possible for new forms of data about the end-users to flow through the payment systems.
The PSR has identified that consumers of payment services have demonstrated an unwillingness to use new overlay services, which allow third-party providers and payment service providers (PSPs) to provide services such as confirmation of payee and request to pay, among others. These services typically require consumers to consent to their data being shared. According to the PSR report, lack of trust is key. The report suggests that consumers are not yet inclined to share their data with providers other than their main bank, making it difficult for third parties to gain a foothold in the market.
Additionally, the report finds that people in rural areas and consumers who are older or have disabilities are at risk of being excluded from new and innovative payment services. This is interesting, because there is a perception (perhaps an incorrect one) that older people in particular may not be the most obvious beneficiaries of technological developments. Equally, it seems that people in rural or isolated areas could potentially benefit from new and innovative payment services. This is evident from the Nordic countries, which have led many developments in payment services including mobile payments and other alternatives to physical cash transactions, partly out of geographical necessity.
Most PSPs and third-party providers do not have access to global transaction data, only their own data. The PSR suggests that access to a wider dataset by these providers would be beneficial in terms of developing fraud prevention and AML measures. In the light of this, the PSR is considering opening up access to global data.
While there are some clear advantages to consumers from the use of overlay services (for example, facilitating direct payments between a customer and a retailer, without using the card rails), it has to be for the service providers to convince consumers of the potential benefits of the services. It often seems like benefits associated with the availability of payments data are mostly in favour of the service providers rather than consumers, making the sale of the service tougher.
Lastly, the PSR addresses the issue of realising the benefits of enhanced data, or payments data that provides more than the bare minimum of information about the transaction. It is suggested that this information could be used for several purposes, including among others, invoice reconciliation. The PSR identifies the cost to upgrade systems to include enhanced data as well as the need for sufficient demand from end-users as potential obstacles to realising this benefit.
These points all come back to one of the principal questions around the new payment services under PSD2: if you build it, will they come? The PSR takes it as a given that consumers should want to make use of these services and seeks to identify (and presumably remove) the barriers to uptake, although since when did having a good product or service guarantee uptake?
The issues discussed by the PSR are intertwined with the requirements of the GDPR. The PSR’s ambitions for the better use of payments data need to be consistent with firms’ obligations under data protection legislation (which the PSR recognised), including notably where an individual is identifiable from payment transaction data. Since the implementation of the GDPR on 25 May 2018, data subjects have increased levels of control over how their personal data can be used.
Overlap between payments and crypto
While on the theme of the overlap of payment systems with other regimes (payments do not exist a vacuum, rather they exist as a means for transferring money for a range of purposes), it is notable to see signs of increasing convergence between the cryptocurrency and traditional fiat currency systems. In the past, the cryptocurrency system has been seen as a way of bypassing existing banking and payments systems. Except that was never quite the case because on most occasions the purchase of a crypto token (at least at some point in a transaction) generally needs to have been supported by a transfer of fiat currency. After the token has been purchased, crypto-to-crypto transactions can take place of course. Again, at some point the token holder may wish to encash their holding into fiat currency. Naturally several crypto platforms have recognised the necessity of having the means to process transactions in fiat currency, hence there are examples of firms applying for FCA authorisation (and authorisation elsewhere) to issue e-money and/or provide payment services. Authorisation under PSD2 or 2EMD seems to be an appealing way for a number of crypto firms to enter the regulated arena at present.
This article was first published by Practical Law : Jacob Ghanty’s payment services and e-money column: September 2018