Just when The European Union should be stepping up its efforts to keep the old continent competitive in the digital game, it has introduced regulation that will probably halve the usage of some of the most important mobile applications. The idea of the Payment Service Directive 2 (PSD2) is to make the world safer for digital consumers and increase competition in the banking sector. While the idea is great, the reality could be a little different.
The new directive forces consumers to use strong electronic identification whenever they make purchases in a web store. Imagine standing on a bus stop and having to use your bank’s identification codes every time you use your app to pay for a journey. This is a nuisance to the customers but a huge blow to smart mobility, the cornerstone of smart cities. The equivalent is trying to decrease the amount of traffic mortalities by making bicycles more difficult to pedal, when the real problem is speeding on highways.
It makes sense to require strong electronic authentication when people buy expensive goods over the internet. After all, you don’t want to find out that someone bought thousands of euros worth of goods with a device they stole from you. However, the idea of smart mobility is to make small individual purchases as easy as possible. If this is made difficult, people will start using their credit cards to make these small purchases or they buy their electronic travel passes on their home computers and then send them to their mobile devices.
You might think that we can live with that, if it makes the world safer. However, a modern app lets the traffic system know who is going where and optimises the system for everyone’s benefit. When you travel with a credit card or a mobile ticket on your phone, the system only knows that the traveller has paid a fee, with no other intelligence collected. As a result, travel is unlikely to get any smoother and cities won’t get any smarter.
At PayiQ we believe that European legislators should have familiarised themselves with the available technologies before introducing new regulation. PayiQ’s Microsoft Azure-based ticket-as-a-service has been built around fraud prevention. We have three systems working simultaneously during each transaction. First, we accumulate purchase data to build a buyer profile. If the activity changes suddenly and does not fit the profile anymore, our system alerts. Secondly, the certified payment gateway we use guarantees that the money transaction itself is secure. Thirdly we use HERE location data to spot any discrepancies in where the service is used.
The combined fraud prevention power of these independent systems makes the sum of the parts extremely safe. So far, we have not had a single fraudulent incident.
The deadline for PSD2 was 14 September 2019, but not much happened. Practically all European government agencies and banks decided to delay enforcing it, perhaps because they believed it may be harmful. Everyone is now waiting to see what happens next.
The e-commerce and mobile payment industries would like to see the directive rewritten. There is a lot on the line - not only is the future of smart cities at risk, but so is Europe’s chance to lead the way in developing them, and the future of payment solutions. If European governments insist on harmful regulation, an increasing amount of payment intermediation will be handled in America, putting many business opportunities beyond Europe’s reach. I believe reason will prevail and the law will be rewritten, for the benefit of Europe and its citizens.
Tuomo Parjanen is the CEO of PayiQ, a Microsoft partner