PSD2
What are the threats of the new EU Payment Directive for Russia?
On 13 January 2016, the second Payment Services Directive of the European Union Payment Services Directive revised (PSD2) came into effect. It limits the possibilities of already existing institutions and rigidly directs the development of the financial sector in the direction desired by interested parties. Who, how and why wants to gain full control over payments in Russia and how can this be countered?
REPLACING THE FED?
The directive lays the groundwork for a completely new financial system. It creates a foundation for replacing the Fed with new payment services. The leverage chosen is the population, as the new services that the directive will allow to be created will have attractive consumer characteristics and could become “popular”.
The directive prioritises service providers, and the system of contractual relations is being changed to cybernetically fixed rules of interaction established by law.
ARE BANKS NO LONGER NECESSARY?
Banks’ role will be limited solely to holding money, as all other functions are transferred to intermediaries through the introduction of two new licenses: payment initiation and financial information gathering.
Payment Initiation Service Providers (PISPs) will provide interfaces for making payments, acting as intermediaries between the consumer and the account servicing payment service provider. These services will have the right to debit funds from ANY account in ANY financial institution without their consent. Thus, the directive allows a strong global player to completely take control of all payments at the country level.
Account Information Service Providers (AISPs) will, at the client’s request, access information about their accounts (e.g., balance) from financial institutions and consolidate it in one place.
WHAT ARE THE THREATS?
Firstly, the directive deliberately creates precisely two new licensed services to gain absolute control over the market.
In the license for information aggregation, the key words are “on behalf of the client”. Such an order can be included in any general offer, which the end consumer usually signs without reading. For example, the offer of mobile phones, which the user sees when the phone is first turned on and is forced to agree to for further work with the system. At the moment, phones running Apple, Microsoft, and Google software are particularly popular in Russia. All three of these corporations are American, and they are the ones who can gain control over the payment system in Russia.
Thus, the payment initiation service is incomplete without the aggregation of financial information. And full control over the aggregation of financial information can be exercised by American corporations.
Secondly, the directive obliges financial institutions to provide information to financial intermediaries without concluding a separate agreement.
At the beginning of 2017, uniform standards for data exchange with intermediaries will be prepared, mandatory for application throughout the European Union. What does this mean for Russia? In its worst form, control by information technology will be implemented as a requirement for everyone to use one certification center and one root security certificate. Considering that the other provisions of the directive imply a solution to payment control precisely by technological means, there is a possibility of collusion between the owner of the money of the US Federal Reserve and American manufacturers of equipment and operating systems (Apple, Microsoft, Google, etc.).
Thirdly, a common register of payment institutions and their agents will be created in the European Union.
Thus, only market participants with a basic certificate will be able to connect to the system. Technically, it will be most convenient to restrict the connection to DNS servers, which are the backbone of the Internet – also only by certificate. This means that without this certificate it will not be possible to use the World Wide Web. If any party suddenly wants to selectively disable DNS servers, then access to the Internet on the territory of Russia will be closed, and all payments will be stopped. Thus, from the outside, it will be possible to instantly completely stop the entire financial system of the country.
Conclusion: the directive, at the final stage of its implementation, jeopardizes not only the existence of the banking business in Russia but also the entire economy.
Kasia Sz.
based on analytics by Alexey Zarin
Tbilisi, 2016