As we see, historically, legislation has had a major impact in either encouraging or discouraging new payment systems. The negative impacts of EMD1 on the EU eMoney market (despite best intentions) resulted in a new piece of legislation, EMD2, to try and correct the issues it caused. With the emergence of the new PSD2, there is a focus and investment from banks to help open up access to customer banking data and create new value-added open banking services (e.g. giving customers better understanding of consumption habits). Do you think the open banking initiative has promise or is doomed to fail? Justify your answer either way in the discussion board.
I think PSD2 has a larger chance of success. Firstly, the definition of electronic money was expanded to be more technologically neutral [1]. This is important because development of technology often brings about new efficient and secure methods. Storing value in the card itself was popular before the era of 3G networks. Without a reliable means of accessing the Internet, storing the value in IT servers could mean an unreliable payment method. However, with good Internet access today, the preference has changed. Storing value in IT servers means that even if you lose your card, you can get a replacement card that is tied to your account and you do not lose any money. It is also a more secure option. Users can bring home stored value card, use a variety of equipment to hack into it and increase the stored value while leaving almost no trace [2]. Hacking into an IT server while remaining undetected is a much more difficult task. Hence, the industry will likely express more interest in PSD2 with the wider scope of implementation available to them.
Secondly, businesses are also allowed to undertake "unrelated payment services and other unregulated business" under PSD2 [3]. Previously, there was uncertainty over whether payment initiation services fell under the ambit of the PSD1 [4], which discourages adoption. The purpose of a business is to bring in profits, and if the business is restricted to only issuing electronic money, there isn't much room for innovation or profit making. Buy Now, Pay Later (BNPL) is one of the increasingly popular financial services recently [5]. Ethical considerations aside, businesses stand to profit from financially irresponsible customers who take on more debt than they can handle. Under the open banking initiative, BNPL companies will be able to get more accurate real-time information on the customer's finances, reducing the amount of bad loans, while customers may also benefit from the increased requirements for "safeguarding customers' funds and the right to redeem any excess stored value or payment made to the BNPL companies [6].
[1] Eu Regulation of E-Commerce : A Commentary (Edward Elgar Publishing 2017), para. 6.39
[2] Jie Feng (2020), 'Hacking a Stored Value Card', Medium https://medium.com/csg-govtech/hacking-a-stored-value-card-4ee0a9934d2b accessed 13 October 2024
[3] "UK Implementation of the Second Electronic Money Directive" https://uk.practicallaw.thomsonreuters.com/8-506-1503 accessed 13 October 2024, pp.3
[4] Eu Regulation of E-Commerce : A Commentary (Edward Elgar Publishing 2017), para. 6.19
[5] Joanna Stavins (2024), 'Buy Now, Pay Later: Who Uses It and Why', Federal Reserve Bank of Boston https://www.bostonfed.org/publications/current-policy-perspectives/2024/buy-now-pay-later-who-uses-it-why.aspx accessed 13 October 2024
[6] "UK Implementation of the Second Electronic Money Directive" https://uk.practicallaw.thomsonreuters.com/8-506-1503 accessed 13 October 2024, pp.3