The Directive on Payment Services (PSD) is an initiative being introduced to harmonize the payments industry in Europe and is expected to be in place by November 1, 2009. The directive will define a uniform legal framework across the SEPA payments industry, allow greater cost transparency to customers and increase competition.

Such competition will not only be between banks — the PSD will open the payments market to organizations other than banks allowing new players to enter the fray. This has created a new legal entity within the payments industry known as the Payment Institution.

These Payment Institutions do not have to be banks but now, thanks to the Directive, they cannot be excluded from any payment scheme, instrument or geographical area within the scope of the PSD, such as:

• Cash deposits and withdrawals from an account in a bank branch
• All electronic payments; credit transfers and direct debits (both domestic and cross-border)
• All payments involving methods such as credit card payments, debit card payments, PayPal accounts and mobile phone-based payments
• Funds transmission services such as PayPal, Moneycorp, Western Union, etc., who offer money transfer services

And with the opening of a market, so comes the inevitable scramble to establish market share. The efficiency of the service and how it is priced to the consumer are key in the race for SEPA supremacy and that will depend on how automated and efficient the payment processing of a Payment Institution is. Automation lowers operational costs in terms of manual intervention and lowering these costs can help the Payment Institution offer a very competitive pricing structure to the consumer.

Payment engine providers can offer applications to format or repair payment messages automatically but they all need accurate IBAN and related BIC data as vital elements in order to effectively process payments. Although the introduction of the PSD will to some extent level the playing field for the participants of the SEPA payment industry it will be those without comprehensive payment data who will find it more of an uphill challenge to compete.