Adyen Offers PSD2 Payments to European Merchants, and U.S. Merchants Should Take Notice

Adyen (Surinamese for “start over again”) is a growing Netherlands-based payment platform. Adyen is among the leading providers whose business model is designed to capitalize on the European Union’s Payment Service Directive (“PSD2”), which requires banks to offer application programming interfaces (“APIs”) for third parties to initiate direct bank-to-merchant payments.  The company recently announced a partnership with KLM Royal Dutch Airlines to offer one of the first PSD2 implementations in Europe.  Adyen also currently supports major UK banks because of that country’s Open Banking initiative, with plans to enroll additional banks in other European markets.

PSD2 could be a game changer for European merchants that have long been subjected to the anticompetitive practices of Visa and Mastercard. PSD2 payments do not run on Visa, Mastercard, or any other payment card network rails, thus avoiding high network/scheme fees or interchange.  Instead,  PSD2 transactions are authorized and settled by connecting merchants securely to customer bank accounts.  This links the two parties with consumer relationships, the issuer and the merchant, and cuts out the unnecessary network middleman that imposes high fees.

Direct bank-to-merchant payments are more common in Europe, but like the United States, European consumers have been trained to use Visa and Mastercard payment cards.  Like their American counterparts, European merchants have little choice but to accept those cards.  That’s why consumer education will be critical to the success of PSD2 payments.  Merchants should inform their customers about the security of PSD2 payments, and consumers should know that they are paying higher prices because merchants are paying higher fees to Visa and Mastercard and their issuer banks, which are passed on to consumers in the form of higher prices.  PSD2 transactions could lower payment acceptance costs for merchants, and those savings could be passed on to consumers through lower-priced goods.

The success of PSD2 payments in Europe could increase pressure for a similar regulatory initiative in the United States, which merchants on this side of the Atlantic would welcome.  Initiatives like PSD2 are giving merchants more choice in payment acceptance, which could create meaningful competition to the dominant Visa and Mastercard payment networks. Direct connections between merchants and banks can disintermediate the payment networks and unshackle merchants from the networks’ anticompetitive Honor All Cards rules.  Moreover, the rise of online and mobile commerce gives merchants more control over the checkout experience, including the presentation of alternative payment options.  Merchants therefore have the ability to design online and in-app payment flows that steer consumers to lower-cost payment forms.

That’s why U.S.-based merchants should take a closer look at payment platform companies like Adyen, which has already signed up an impressive list of Silicon Valley unicorns like Uber, Pinterest, Spotify, LinkedIn, and Etsy.  These companies integrate Adyen payment processing APIs into the back-office infrastructure that powers their websites and mobile apps, giving them flexibility to design compelling payment experiences.  Brick-and-mortar merchants should also take note.  Adyen supports omnichannel commerce, which links online and in-store payment transactions.  And Adyen supports Alipay, UnionPay and WeChat Pay acceptance at the in-store point-of-sale, which not only enables Asia-based consumers to make purchases at U.S.-based stores, but also allows merchants to take advantage of lower payment acceptance fees.  Payment markets have not been competitive for merchants for decades.  To unwind that market failure, merchants must examine every option at their disposal, including firms like Ayden.