Aiming to meet the European Union’s Payment Services Directive regulation, which goes into effect in the fall, Lloyds Banking Group partnered with cybersecurity startup Callsign.
Under the deal, Lloyds Banking Group will use Callsign’s digital identification and authentication tool for the bank’s digital payments. The product will be rolled out to all of the bank’s customers across its main brands. The UK cybersecurity startup’s technology works by utilizing real-time data points to make sure a person is who they say they are. The product combines multi-factor authentication and transaction approvals to authenticate identities.
“We have already built a brilliant foundation with Lloyds Banking Group and I am thrilled at the prospect of continuing our working relationship,” said Callsign founder and Chief Executive Zia Hayat when announcing the partnership. “Our solution will enable the bank to go even further in maintaining a premium customer experience when it comes to identification, traditionally a challenging thing to achieve.
The deal with Callsign enables Lloyds to meet the requirements of PSD2, which goes into effect on September 19. The EU regulation calls on banks to increase their method for verifying payments in an effort to clamp down on fraud. Banks will soon be required to verify most online payments that are for more than €30. It is a requirement that the banks are having a hard time meeting. According to media reports, one-quarter of all online payments in the EU won’t process by the deadline because banks haven't added the necessary verification. Some are calling for the deadline to be extended as a result.
It is likely more banks will follow Lloyds Banking Group’s lead and partner with a fintech that helps it meet the new security regulations. Companies like Callsign enable the banks to launch these new security tools at a faster pace than if they tried to go it alone, creating security tools in house. As a result, the regtech market is expected to grow as more startups open their doors to help the traditional financial service players meet a growing list of new regulations.
According to Deloitte there are about 300 regtech startups catering to different segments of the financial services market today. The consulting firm found the majority are going after compliance, while identity management and control is the second largest category. The rest are spread out across regulatory reporting, risk management, and transaction monitoring. Their services are expected to be in more demand in the coming years as more regulations are added around the world.