"Is PSD2 a good thing, or a bad thing?" That's the question that's kept many online payment commentators busy for the better part of two years. The motivating goal behind the legislation is to protect the interests of consumers—but, in doing so, PSD2 also appears to threaten Europe's emerging marketplace economy.
Although there are a number of positive elements to the regulation (e.g., stronger authentication, API access to consumer bank accounts), some mandates of PSD2 may look like nothing more than an administrative burden—an unnecessary complication to the growth of the continent's ecommerce and on-demand companies. And while its likely to cause some short-term frustration, it might surprise you to hear that PSD2 also has the potential to accelerate payment innovation and draw more independent workers into the marketplace space.
The PSD2 Problem
There's one particular mandate of PSD2 could spell trouble for some European marketplaces. By 13 January of next year, companies acting on behalf of both buyers and sellers on their platforms will not be able to enter into possession or control of client funds unless they have obtained authorisation either as a payment institution (PI) or electronic money institution (EMI). Those that haven't will be subject to a range of government-imposed penalties, up to and including the termination of the business itself.
Obtaining that authorisation isn't easy. Aside from the significant administrative and financial costs, the process also takes time—and, frankly, any marketplaces that haven't already started have probably waited too long.
Of course, marketplaces have another option: removing themselves from the financial process by outsourcing payment acceptance and distribution to authorised third-party partners. It's through these partnerships that PSD2 also presents a real opportunity. By working alongside established payment providers, these companies have the chance to adopt new payment technology—and that could be very good for the success of European marketplaces down the road.
The Evolution of PX
Consider one of the essential elements of a successful marketplace: the user experience (UX). Leading ecommerce and on-demand companies like Amazon, Uber, and Airbnb have made the simplicity of transacting on their platforms a priority from the very beginning. Still, there's an element of the overall UX that many marketplaces have yet to master. When it comes to attracting and retaining both supply- and demand-side users, a marketplace's payment experience (PX) needs to be at the top of the list.
What constitutes a great PX has changed over time. On the consumer side, payment expectations have been molded by companies like PayPal, which has enabled seamless and secure C2B and C2C transactions online. Don Kingsborough, former VP of PayPal, says it's the other way around: "Consumers are changing what technology is doing... [Innovations] are a reflection of what people are trying to do."
However, payments innovation for marketplace suppliers—whether they're selling their creations on Etsy or delivering food through Grubhub—has moved more slowly. Some payees have the option to receive their earnings through a domestic bank account, but many need to wait days, even weeks for their funds to arrive via physical check. These suppliers have essentially no control or oversight over how and when their earnings are delivered. According to a Hyperwallet report titled The State of Ecommerce Selling in 2017, roughly 26 percent of ecommerce sellers haven't received payment for a product they sold, and 13 percent have left a marketplace due to a frustrating PX.
Marketplaces' payout problems only increase as these companies expand into new geographies. It doesn't just become more difficult to quickly and securely deliver funds by bank transfer or check. Payouts to international suppliers are also complicated by the circumstances on the ground: things like bank account adoption rates and the availability of identification documents. How do you pay someone who can't receive direct bank transfers or deposit checks? Moreover, how do you ensure that same person still has a positive PX?
Driven by improvements to the other side of the transaction, the demand for a faster, more flexible payout solution for ecommerce and on-demand suppliers has been growing for some time. PSD2 might just be the motivation that marketplaces need to address it.
Seizing the Opportunity
Working with an established partner, European marketplaces can not only more safely navigate the new regulatory terrain around PSD2, but also dramatically improve the speed, transparency, and flexibility of their payout solution. For example, a company like Hyperwallet employs a virtual account architecture that allows clients to rapidly deliver funds while providing payees with a great deal of control over the PX. Recipients can manage their earnings through an online portal, giving them the opportunity to choose their preferred payout method and withdraw funds at their convenience. The platform is also outfitted with support tools—like expense management software and integrated rewards programs—to reinforce user retention and help payees get the most of their money.
As Europe's marketplace economy continues to grow, competition will increase—not just amongst marketplaces, but also with other independent earning opportunities. In that climate, PX will be an important differentiator. The most attractive ecommerce and on-demand companies will be the ones that provide suppliers with the same sort of PX they offer consumers: real-time, self-serve, multi-currency payouts. In doing so, they'll reinforce new payment expectations and drive innovation in the space.
PSD2 signals a major change in payments for European marketplaces—but there's still time to get ahead of the curve.