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In 2016, the European Union took an important regulatory step towards modernizing payment services and sharing banking information between financial institutions with the consent of the consumer. This step was taken by updating the Payment Services Directive (PSD), which resulted in the creation of PSD2. The old continent is now discussing the formulation of the PSD3.
PSD2 has a set of rules on consumer protection, the security of transactions and the supervision of institutions offering payment services. The proposed changes to this framework seek to reinforce these same principles, now faced with new challenges and opportunities. This article discusses the points of change, emphasizing the impact on the credit market.
The first point concerns fighting fraud, which requires constant improvement to deal with the emergence of new approaches. One example cited by the European Commission is the practice of social engineering, whereby fraudsters manipulate victims into making undue payments. Proposals to deal with this problem are based on encouraging cooperation between financial institutions, by sharing information related to fraud, and strengthening mechanisms for checking the beneficiary of a payment.
About consumer rightsThe proposal targets details that could make transactions more secure and transparent, by defining the name - legal or commercial - of a beneficiary that must appear in payment transactions. Other more general issues have also been considered, such as bringing payment regulation into line with data protection laws.
Seeking to establish a competition more equitable between banks and payment institutions, the revision of PSD2 opens up the possibility of these institutions being able to integrate payment systems, while being subject to more stringent risk management rules.
The discussions on PSD3 also bring news on the sharing of financial information. While PSD2 was fundamental to the development of Open Banking, the new proposal seeks to broaden the scope of the information to be shared with the consumer's consent, introducing the concept of Open Finance, a term used by the Brazilian regulator since the beginning of 2022. The expanded scope includes information on investments, insurance and credit operations.
The PSD3 update should serve as a parameter for new rounds of regulatory updates around the world. The issue is important because the agenda of modernizing means of payment promises to make transactions faster, more efficient and less costly, representing a vector for economic growth and integration between economic activities - especially informal ones - and the financial system.
The case of PIX in Brazil illustrates the relationship between the development of the payments market and integration into the financial system. Data published in the Banking Economics Report 2021 shows that 36 million Brazilians with no history of making bank transfers before the creation of the PIX started making this type of transaction after the new instrument was created. And more than that: in the group added to the financial system through the PIX, there was an increase in the use of credit in the following months. As the Central Bank itself pointed outHowever, even without establishing a causal relationship between PIX and credit, the data suggests "complementarity between payment services and access to credit".
Enhancing this effect, data sharing infrastructure promises greater competitiveness in more complex financial services, such as credit, by offering consumers the option of sharing a valuable asset: information. An experiment shows that there are gains to be made in the use of banking information, provided it is combined with other data sources. And the reason is simple: sharing via Open Finance has proved insufficient in other experiments around the world, since consumers with a negative credit history would have little incentive to submit this data. When this data is enriched by other bases, the predictive power of credit analysis increases, reducing the risk for credit granting institutions.
The credit bureau sector has been working for decades to provide information for better decision making when granting credit. It has several complementary bases to the open financial system, as well as vast expertise in combining different sources, analytical modeling, predictive and anti-fraud tools. The future of credit analysis lies in the intelligent use of these sources and tools, in order to enable fairer credit conditions and create incentives for the responsible use of credit.
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By: Elias Sfeir President of ANBC & Member of the Climate Council of the City of São Paulo & Certified Advisor
