After a couple months of delay, the guidelines for PSD2 have finally been implemented in the Netherlands. Companies can now apply for a PSD2 license at the Dutch central bank (DnB).
Although telecom operators provide payment services for consumers the impact of PSD2 from the regulatory stand point is limited. Under the first PSD(1), payments made through a telco were excluded. Under PSD2, this exemption has been further specified and narrowed down. The exemption now covers payments for digital services and tickets downloaded to a device with a cap of €50 per transaction or €300 per billing month.
For most telco’s it will probably make sense to stay within these boundaries and to make use of this exemption. The costs of a full license and making their business compliant will probably not outweigh the benefits they can gain by developing PSD2 based (financial) products or services.
This doesn’t mean telco’s cannot benefit from PSD2. With the correct license, acting as Account Information Service Provider (AISP), and with explicit consent of the customer telco's can benefit from having access to bank account information.
Improve check on creditworthiness
From a credit risk perspective, the first and obvious benefit is to improve the credit check. Combining credit bureau data with transactional data will give a holistic view of the customer and a better insight of the financial health of the customer. It will also provide access to up to date financial spending behavior of consumer which will allow a telco to offer tailored bundles based on much more granular consumer profile.
Secondly PSD2 can take away measures that are put in place to protect telco’s from financial risks. For instance most Dutch telco’s require handset orders for new customer with a non-Dutch identity document to be done in a brick-and-mortar store and wont service them online. This policy is in place to validate that the new customers have a proof they have a (lasting) residency in the Netherlands and aren’t just passing by to pick up an expensive handset and then leave.
When consumer consents to share bank account information they can instantly prove their residency in the Netherlands and prove they can afford the product even if they have a limited credit history. This would greatly enhance the customer experience and reduce drop off rates during the online sales process.
Safe lending
Thirdly PSD2 offers opportunities in the mandatory affordability checks that telco’s need to do. As of May 2017, Dutch telco’s need to comply with the Dutch Law on Financial Supervision (Wft) when selling handsets on credit from 250 euro or more. This means telco’s need to assess if the consumer can afford to make repayments over the full length of a loan. In practice this means telco’s need to ask their customers for their income, cost of living and family composition and check the central credit registration bureau (BKR) for any outstanding loans. Together with estimations from Nibud or Vfn a calculation is made to determine how much a consumer can responsibly loan. Most telco’s do not provide handset loans for more than 1000 euro because the Wft would require them to validate the consumers financial position by asking for paychecks and bank statements which complicates the sales process and requires extra administrative processes.
More accurate calculations
By using bank account information provided by the consumer the customer experience in the affordability checking process can be improved and even automated. More important, the ILT will be done with accurate information making the calculations more precise preventing problematic debt or financial exclusion. Finally, as prices of premium handsets continue to rise and with a new generation of foldable smartphones being introduced it is not uncommon for new high-end handsets to costs more than 1000 euro. PSD2 could potentially provide telco’s the means to provide loans above 1000 euro without complicating the sales process for consumers who want to have that new foldable smartphone on a credit.
These are just a few examples of benefits that PSD2 can bring. Clearly PSD2 offers chances to improve the customer experience without making compromises to processes that manage credit risk. Being consents based, it is up to the telco to communicate with customers about the value that sharing their data will bring. But before any of that, 5G will have a direct impact on empowering consumer-centric legislation like PSD2 (The Payments Services Directive 2), which further puts customers in the data driving seat by offering them a clear say in how personal information is shared and used by selected businesses.
About the author
Pieter Paul Baron is a business consultant at Experian a global leader in credit services, decision analytics and marketing services.
With over 10 years of experience in credit management Pieter Paul enjoys helping telco’s and utility companies to unlock the power of data to control credit risk, prevent fraud and to provide smooth digital onboarding capabilities. He has consulted clients in Europe and the Middle East on projects for global telco groups and local operators.
