On 13 January 2018, a new regulation for the provision of payment services will come into force in the Czech Republic, introducing the most significant changes to the Czech banking market in recent years.
Newly Regulated Payment Services
This new regulation (Act No. 370/2017 Coll.) has been adopted in the Czech Republic based on EU Directive No. 2015/2366 called PSD 2. It responds to the progress in the area of electronic payments and the development of new types of services caused by the technological boom. The most significant change introduced is that additional payment services – payment initiation service and account information service – allowing third party providers to directly access customer’s bank accounts are newly regulated, and that providers of such services must obtain a license from the Czech National Bank.
Payment initiation service allows a third-party provider to initiate a payment on behalf of a customer from that customer’s bank account, through a website or mobile application. This means that it is now possible for the customer to make payments, for example, through a mobile application of a third party without the need to use his credit or debit card. As a result, it is expected that the overall number of transactions made with credit or debit cards will decrease.
Account information service allows a bank or a third party provider to provide a customer with information about all of his bank accounts through its website or mobile application. Using this service, the customer can easily obtain information about all of his bank accounts held with different banks from a single source.
In both cases, it is only possible for the third party provider to access the customer’s banking application with his consent.
Strengthening Customer Protection
The new regulation also strengthens customer protection in the area of payment services.
All providers of payment services must use unified terms with respect to services connected to their payment accounts. This should allow customers to compare the payment services available on the market more easily.
When making a payment transaction over the internet, the customer must be protected by strong customer authentication, which must combine at least two means of customer authentication – for instance, entering a password and a special code delivered to the customer’s mobile phone.
Under the new regulation, the limit of the customer’s liability for non-authorized transactions is lowered from €150 to €50.
New Opportunities for All
The new regulation brings new opportunities for both banks and Fintech companies. Banks should find it beneficial to form partnerships with companies from the technology industry, which would allow them to introduce a new range of payment services. It is also likely that Fintech companies will benefit from more open access to the banking market.
The existing providers of payment services already licensed or registered in the Czech Republic must submit evidence of their compliance with the new regulation to the Czech National Bank within three months (or 9 months in case of small-scale electronic money issuers and payment services providers) from the day on which the new regulation comes into effect. It is important that providers now review their internal processes and customer contracts to ensure compliance with new law.