SESSION 3

Lecture: Continue AML

Lecture: How do banks make money?

Discussion: Is it immoral for banks to

make money?

Lecture: Payments & PSD2

Group work: PSD2 Strategy for a bank

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1

How do banks make money?

1. Services – fees/commissions
2. Lending – interest margin

Do banks make too much money?

Is it immoral for banks to make money?

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2

PSD2- Payment Services

Directive 2
WHY?
• Develop a better integrated internal market for
electronic payments within the EU
• Puts together compehensive rules to make
international payments as easy as within a single
country
• Open up payment market for more competition
• Provide legal platform for signle euro payments
area (SEPA)
History
PSD (Directive 2007/64/CE) established Open Banking in Thailand:
requirements, rights ans obligtations of payment
https://www.bot.or.th/Thai/FIPCS/Documents/F
service providers and users.
Deadlines
14 March 2019- All banks must have APIs ready for
testing by PISPs and AISPs
Link to EU law:
https://eur-lex.europa.eu/legal
content/EN/LSU/?uri=CELEX:32015L2366 Link to Summary of
Law
https://eur-lex.europa.eu/legal
content/EN/TXT/HTML/?uri=LEGISSUM:24040
20302_1&from=EN
Good infographic:
https://www.europeanpaymentscouncil.eu/sites/
default/files/infographic/2018-
04/EPC_Infographic_PSD2_April%202018.pdf
PG/2559/EngPDF/25590157.pdf turns-to-open-banking/
https://www.forbes.com/sites/scarlettsieber/202
1/03/03/open-banking-what-does-it-mean-for
Open Banking in the USA: the-us/?sh=b25e66eb52ac
https://fpf.org/blog/the-future-is-open-the-u-s

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3

PSD2: 2 New regulated entities

Payment Initiation Service (PISP)

• A PISP may initiate a payment on behalf of a user
but the funds may not touch anyt PISP account.
• Only applicable to payment accounts accessible
online
• Explicit payers consent required.

No dependence on contractual relationship

between
Account Information Service (AISP)
• An AISP may gather information of payment
accounts on behalf of a user.
• Only applicable to payment accounts accessible
online,
• Explicit account older’s consent required.

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4
PSD2 continued

Strong Customer Authentication (SCA)

Why? To reduce risk of fraud and enhance protection for customers.

For all electronic transactions, SCA means two or more of the following independent elements will
be used:

• Knowledge: Something only the user knows (password, pin etc.)

• Posession (Something only the user possesses (key, phone, etc)
• Inherence: Somethin the user is (fingerprint, voice recognition etc.
• Plus extra elemennt for remote trnasactions (A unique authentication code which dynamically links the
transaction to a specific amount and payee.

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5
Are banks under threat from PSD2?
You should be prepared to present to the board:
SITUATION
You are a universal bank, ranked #5 in your country
which will have to comply under PSD2. Up to now,
you have actively defended your bank from all
competitor threats. You have been sucessful with
this strategy, you are currently profitable and have a
5% growth in customers per year. You represent the
C-suite of this bank.
1. Will the bank just do the bare minimum
compliance or will they change their
strategy? Outline the strategy and the
rationale for it.
2. What are threats and opportunities of PSD2?
3. What effect will this strategy have on bank
customer acquisition and eventual profits in
the short, medium, and long term?

In the face of PSD2, you will have to open up

information to third parties. You have hired McKinsey
to study the implications of the new regulation and

The board of the bank wants to know what the bank MCKINSEY REPORT
management recomends that the new strategy
should be.
https://www.mckinsey.com/industries/financial
services/our-insights/psd2-taking-advantage-of-open
You have 45 minutes. Each group will have 10 banking-disruption
minutes to present to the class.

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6
Fintechs taking advantage of

PSD2PLAID TINK

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7
SESSION 3

Lecture: How do banks make money?

Discussion: Is it immoral for banks to

make money?

Lecture: Payments & PSD2

Group work: PSD2 Strategy for a bank

 © PA Knowledge Limited | PA Confidential – Internal use only
8

How do banks make money?

1. Services – fees/commissions
2. Lending – interest margin

Do banks make too much money?

 Is it immoral for banks to make money?

© PA Knowledge Limited | PA Confidential – Internal use only

9
area (SEPA)
PSD2- Payment Services
Directive 2
History
PSD (Directive 2007/64/CE) established
requirements, rights ans obligtations of payment
WHY?
service providers and users.
• Develop a better integrated internal market for
electronic payments within the EU
Deadlines
• Puts together compehensive rules to make
international payments as easy as within a single 14 March 2019- All banks must have APIs ready for
country testing by PISPs and AISPs
• Open up payment market for more competition
• Provide legal platform for signle euro payments
 https://eur-lex.europa.eu/legal
content/EN/TXT/HTML/?uri=LEGISS
UM:2404020302_1&from=EN

Link to EU law:
https://eur-lex.europa.eu/legal Good infographic:
content/EN/LSU/?uri=CELEX:32015L 2366 https://www.europeanpaymentscou
ncil.eu/sites/default/files/infographic /2018-
04/EPC_Infographic_PSD2_April%2 02018.pdf
Link to Summary of Law

© PA Knowledge Limited | PA Confidential – Internal use only

10

PSD2: 2 New regulated entities

Payment Initiation Service (PISP)

• A PISP may initiate a payment on behalf of a user
but the funds may not touch anyt PISP account.
• Only applicable to payment accounts accessible
online
• Explicit payers consent required.
 accounts on behalf of a user.
• Only applicable to payment accounts accessible
online,
• Explicit account older’s consent required.

No dependence on contractual relationship

between

Account Information Service (AISP)

• An AISP may gather information of payment
© PA Knowledge Limited | PA Confidential – Internal use only
11

PSD2 continued
Strong Customer Authentication (SCA)
Why? To reduce risk of fraud and enhance protection for customers.

For all electronic transactions, SCA means two or more of the following independent elements will
be used:

• Knowledge: Something only the user knows (password, pin etc.)

• Posession (Something only the user possesses (key, phone, etc)
• Inherence: Somethin the user is (fingerprint, voice recognition etc.
• Plus extra elemennt for remote trnasactions (A unique authentication code which dynamically links the
transaction to a specific amount and payee.

© PA Knowledge Limited | PA Confidential – Internal use only

12

Are banks under threat from PSD2?


SITUATION
You are a universal bank, ranked #5 in your country
which will have to comply under PSD2. Up to now,
you have actively defended your bank from all
competitor threats. You have been sucessful with
this strategy, you are currently profitable and have a
5% growth in customers per year. You represent the
C-suite of this bank.
In the face of PSD2, you will have to open up
information to third parties. You have hired McKinsey
to study the implications of the new regulation and
The board of the bank wants to know what the bank
management recomends that the new strategy
should be.
You have 45 minutes. Each group will have 10
minutes to present to the class.
© PA Knowledge Limited | PA Confidential – Internal use only
You should be prepared to present to the board:
1. Will the bank just do the bare minimum
compliance or will they change their
strategy? Outline the strategy and the
rationale for it.
2. What are threats and opportunities of PSD2?
3. What effect will this strategy have on bank
customer acquisition and eventual profits in
the short, medium, and long term?
MCKINSEY REPORT
https://www.mckinsey.com/industries/financial
services/our-insights/psd2-taking-advantage-of-open
banking-disruption
13