My name is Anders Karlsson and I am responsible for, among other things, our direct bank transfer product and open banking solution at Klarna. And what do these two have in common?
Both are made possible by an EU directive called PSD2 (Payment Services Directive 2), which aims to promote security and innovation in payments and financial services. For consumers this entails more, and smoother, payment options. PSD2 came into force throughout the EU in September 2019.
However, the implementation of the directive has proved difficult for many banks, since it means they must provide so-called application program interfaces (APIs). Through these APIs, banks allow customers, often with fintechs as third party providers, to access their bank accounts without being forced to use the banks’ own apps and internet services.
The banks have not done enough says new opinion from EBA.
The European Banking Authority (EBA) is an independent European organization whose task is to harmonize various regulations and help banks in the EU to create a fair and equal playing field for banking operations. Due to the complexity of the PSD2, EBA has published guidelines and technical standards around the directive, in particular with regards to strong customer authentication (SCA). EBA has also recently published an additional opinion on the directive, showing that bank transfer payments in Europe are far from as flexible as they should be, due to the banks not having implemented the directive adequately.
Two points that are raised in the opinion that we specifically appreciate, since they directly affect us, are:
- All authentication methods must be able to be used by all third-party actors. Today, for example in Sweden, you cannot use Klarna with some banks if you do not have Mobile BankID. This means that people who do not have or do not use a smartphone cannot use our shopping and payment service.
- The banks should not differentiate between third-party actors when it comes to SCA (strong customer authentication), since it creates a distorted competitive landscape. If you, as a consumer, have to authenticate yourself in several stages with one third-party actor and only once with another, you naturally choose the most convenient alternative. In addition, some banks require authentication more times with third-party actors than they require for their own payment methods.
These implementation flaws create a distorted competitive situation for third-party providers but also have a direct negative consequence for both consumers and online retailers. For consumers, the experience is clearly less convenient and more time consuming than it could, and should, be. If login and authentication takes a long time, contains warnings, or you’re sent between different pages that take a long time to load the purchase simply becomes so complicated or time consuming that customers choose to drop off and do not complete the purchase. This, in turn, of course affects the e-merchants who are losing out on purchases and revenue.
A vicious circle that, according to EU directives, should not exist.
There are examples of compliant banks.
However, we should not drag all banks into the mud. In fact, the implementation of PSD2 differs greatly from bank to bank. The one that has done it best in Sweden, and thus provides a good user experience, currently has 20 percent higher conversion compared to a large competitor. One of the major banks thus has 20 percent more completed purchases than a comparable competitor.
Klarna also has Europe’s leading open banking platform.
Our goal is to make shopping and payments as simple as possible, to free up time that can be spent on other things. That is why we also offer the opportunity to use our open banking platform to other operators such as other banks, fintechs and yes, really any company. The platform’s API provides access to over 5000 banks in Europe.
And our work has paid off. An independent report from Finnish Fintech Farm compares nine different open banking platforms available in Europe, with a particular focus on the Nordic countries, and shows that Klarna’s solution is overall the most complete! The entire report is available for download here, if you are interested in reading more.
For us, this is perhaps the ultimate proof that there is so much we can do together to make everyday life easier for consumers and businesses.