On 29 June 2017, the European Banking Authority (EBA) published its response to the European Commission’s (EC) proposed changes to the Regulatory Technical Standards (RTS) on authentication and communication under PSD2.
The “Future of European Fintech Alliance” — currently consisting of 73 European fintechs, challenger banks and fintech industry organisations with PPRO Group being one of them — disagrees in the strongest terms with the EBA’s response.
The EBA does not want third-party providers (TPPs) to use the customer-facing interfaces as fallback, should the dedicated TPP-interface fail for some reason – this even despite the fact that both ways of accessing an account are recognized as being in line with PSD2. This position undermines the business model of EU fintechs so fundamentally that it calls into question the entire future viability of the industry in the European Union.
The “Future of European Fintech Alliance” believes that freedom of choice should be reciprocal: if Account Servicing Payment Service Providers (ASPSPs) shall be able to choose whether or not to provide a dedicated interface; the TPPs should also be able to choose whether or not to use it, if suitable, or simply carry on using the customer-facing interface – although then only after properly identifying themselves as a legitimate, PSD2-licensed, security-audited and supervised TPP.
While not accommodating reciprocality, the amendments proposed by the EC represent a balanced compromise between the needs of the banks and the fintech industry. PSD2 protects direct access in Art. 98 and Recitals 32, 93 and prohibits obstruction of that access but for cases of fraud in Art. 68 (5). The EC’s amendments imply that banks are not allowed via RTS to unilaterally exclude or obstruct such direct access.
In return, the EC obliges TPPs to use dedicated interfaces as long as they work properly. This offers banks the opportunity to provide a well-functioning API (Application Programming Interface) that does not restrict effective competition, but it forces them to accept direct access where they fail to deliver that. This provides effective incentives to either invest in quality APIs or desist (from obstruction).
Therefore, the “Future of European Fintech Alliance” is deeply concerned about the EBA’s proposed removal of the customer-interface as a fallback:
- If the dedicated TPP-interface provided by an ASPSP fails for any reason, the TPPs which rely on that interface will no longer be able to operate.
- The EBA’s initial rationale for banning authorised direct access did not withstand scrutiny and is now replaced with equally flawed new arguments. For example, the EBA has now reinterpreted the legal assessment of the meaning of PSD2, saying that ASPSPs are required by law to limit TPP access to certain data only. This is an unexplained innovation late in the process that seems unduly prejudiced against the fundamental interests of TPPs.
So, in contrast to the EC’s proposal, EBA´s opinion takes a one-side stance, which will lead to the protection of incumbent banks’ interests against competition.
Ralf Ohlhausen, Business Development Director PPRO Group, who is one of the alliance’s members says: “The EBA’s approach would disable existing, well-working payment initiation as well as account information services, which are very popular and widely used amongst consumers. It would undermine the most used business model of the European fintech industry, one of the world’s biggest growth industries and one of the few areas in which EU tech companies have a lead over their Silicon Valley competitors.“
The “Future of European Fintech Alliance” calls on the European legislators and the EC to reject the EBA amendments and endorse the compromise drafted by the EC, which recognizes the input from a wide range of stakeholders, including non-bank actors.
For a detailed insight into why the EBA’s proposal threatens the EU’s fintech industry, read the full statement by the “Future of European Fintech Alliance” here.