What impact will PSD2 have on the Retailer?

door: Henk Hofstede , Sonny Duijn

In January 2018, the new legislation that is PSD2 [the revised EU Payment Services Directive 2015/2366] comes into force. Third parties will then be granted access by banks to transaction data about customers, provided that the customer in question, as the owner of his (or her) transaction data, gives his consent for this. This creates opportunities for the retail sector, as retailers can then use this data to carry out analyses. PSD2 can lead to greater ease of use, loyalty and conversion amongst retailers’ customers. Over time, a fixed POS (Point of Sale) location in the store may even become less and less common.

What impact will PSD2 have, what are the challenges that retailers are facing in this arena, and which new services are banks offering? We discussed these key questions with ten international retail customers from the fashion, non-food and optical sectors.

Consumer wants an omnichannel experience and rewards for visiting the store
In the current climate, the new opportunities offered by PSD2 are welcome. Retailers are having to deal with customer behaviour that is changing. The consumer has become more demanding, also because of technological developments. It has to be quicker and easier, as well as more of an experience. ‘Convenience’ is becoming the new loyalty, with the customer sitting in the ‘driver’s seat’. There is now great competition in the retail sector. In order to be able to cope with the consumer’s unpredictability, you need to analyse what you need to invest in (such as in the omnichannel and supply chain) and where you actually need to take your foot off the accelerator (e.g. closing stores or dumping [unsuccessful] formulas). The speed and complexity of the change means that it is no longer possible to steer your store based on a gut feeling. Knowledge of the customer and keeping a firm grip on your store are essential, with data analysis offering a solution for this.

What is PSD2?
In this context, the new legislation known as PSD2 offers opportunities. The new expanded European legislation that is the Payment Services Directive (PSD2) comes into force on 13 January 2018. This will create a uniform European payments market, one in which third parties will be given access free of charge to customers’ bank account information, provided that the customer in question has consented to this and the third party has been awarded a licence by – or is officially registered with – a supervisory authority such as the DNB (the Dutch Central Bank). An ‘open API’ means that the bank’s data and PSD2 services will then be accessible. The possibilities will then include Account Information (AIS) with useful historical transaction data and balances, PIS (Payment Initiation) under which third parties can initiate payments on customer accounts, and CAF (Confirmation Availability of Funds) in order to check account balances for each card payment. Third parties – acting as what is known as a Third Party Payment Service Provider (TPP) – will then take up a position between retail customers and banks, based on these PSD2 services. Retailers will themselves be able to assume the TPP role too.

Retailer’s bad debt risk declines
Open Banking means that ABN AMRO can also offer other services via APIs. What’s more, retailers are given the option of ‘matching up’ the purchases made by online and offline customers. Having information across all the channels about who your customer is makes it easier to carry out useful data analysis.

ABN AMRO already has a product in the pipeline, which is called Gradefix. Using the available data, retailers and other parties – provided that the consumer in question consents to this – can obtain useful information on the financial resilience of a customer or supplier from a single Gradefix score. The score is compiled on the basis of the transactions in the past fifteen months. In practice, this score represents the durability of a particular customer’s cash flows. This puts a bank or supplier in a much better position to assess an application for a mortgage or tenancy. The customer finds it convenient too, as he does not have to hand over all his financial information now.

The Gradefix scores make it much easier for a retailer to select those borrowers who are reliable. The risk of non-payment in the webshop is significantly lower too. It also gives retailers the opportunity to allow customers – depending on the latter’s Gradefix score – to pay for goods not after each transaction but just once a quarter. Such great ease of use could give a significant boost to customers’ spending. It also offers options for increasing loyalty, the conversion rate and the customer experience. After all, nothing is as annoying as having picked up a great bargain in the store but then having to wait 15 minutes in the POS queue to pay for it. Previous research has also shown that customers are prepared to share their data, provided that they get significant benefits from so doing. PSD2 will accelerate the Gradefix programme, with the rollout expected during 2018.

Instant Payments creates WhatsApp experience
Instant Payments were discussed too. The four major Dutch banks are expected to have introduced Instant Payments by May 2019. Under this new system, funds will be credited in just 5 seconds 24/7, with the situation where iDEAL weekend payments are not credited until Monday morning becoming a thing of the past. The challenges in this regard include speeding up this transaction process even more, namely to the 1.5 seconds that it takes in Denmark. While it’s true that it is optional for European banks and that ‘it takes two to tango’, Instant Payments will become the new normal and is expected to replace the traditional payment by debit card and iDEAL.

It also offers the options of quickly settling payments via the Tikkie mobile payment app, which gives the consumer such benefits as speed and ease of use. Paying will then become just as quick and easy as sending a WhatsApp message. This means that having a set location in the store for the cash register as the POS (Point of Sale) can increasingly become a thing of the past: instead, the retailer will use a QR code, a solution such as Tikkie or other communication options to send the request for payment to the customer’s mobile phone, who only has to approve the payment either directly or indirectly. This means you will not only get closer to the consumer’s purchase intention but also that retailers will receive their money and obtain useful transaction data much more quickly than before. We are lagging behind Scandinavia in this area but we can make enormous progress by the year 2020.

In China, it is already completely normal to have a number of Points of Sale. It reinforces the ‘seamless shop(ping) experience’ that Amazon recently tested in a pilot store in Seattle, in which there were no longer any points of sale but where the customer paid automatically via his mobile phone as he left the store. This means we can abandon the traditional store counter and that retail staff can increasingly act as the host or hostess. Linking unique payment references and information to product data would give the retailer a wealth of useful data. Fintechs will develop this concept further in the future.

Many questions still remain
Naturally, many questions are still unanswered. Such as: are customers actually prepared to share their transaction data with retailers? PSD2 does ask you for your transaction data, and banks will only share this data with new entrants if consumers explicitly consent to their doing so. Retailers will have to make the benefits – namely a more tailor-made service – very clear to customers. The future will show whether the limits of privacy sensitivity will be shifted by the rise and rise of the young. There is already a major difference between conscious and unconscious action. We now find it completely normal to consent online to cookies in order that our surfing behaviour can be monitored. In the coming months and years, we will see how retailers deal with PSD2. What is clear is that PSD2 can hugely enhance the customer experience.