The EU’s revised Payment Services Directive, or PSD2 for short, has got a lot of people talking in the world of banking. In a nutshell, the new law, which comes into force in 2018, will give banking customers the right to authorise banks to allow third parties to access the data generated by their current accounts. The main reason regulators are introducing the new PSD2 legislation is to encourage innovation. Greater openness means more competition, which in turn will result in a more efficient European payments landscape and more choices for customers. Sounds good, but will it really end up working as planned?
Laurens Hamerlinck: PSD2 is the tipping point for API technology to break through into the financial sector.
Laurens Hamerlinck Focus Team Innovation Centre
New rules of play
To find out what impact PSD2 may have on banks, all you need to do is turn to the Internet. Basically, most people think the new law will result in more market entrants and competition. But it’s also expected to create new opportunities for financial institutions. One way is that banks will be taking on a new role as a platform offering more open application program interfaces, or APIs.
New entrants, too, will feel the impact of PSD2, for whom an open payments landscape will create many opportunities, but also additional, though not excessive, regulations to comply with. New entrants not holding a specific license, for instance, won’t be allowed to access data from customers’ current accounts.
A driver of innovation for customers
Ultimately, customers, be they private individuals, self-employed professionals or entrepreneurs, will feel the main impact of the upcoming changes. Each account holder is the owner of his or her accounts and the data they generate, and most customers probably won’t just hand over access to their data without a second thought. But that won’t keep new entrants from pulling out all the stops to try to win them over. That’s why PSD2 is being hailed as a driver of innovation in the financial sector. After all, in an open landscape there are countless applications imaginable catering for both private customers and business clients, including multi-bank applications, payment options through social media platforms and dedicated supermarket apps allowing users to pay for their shopping. Not to mention financial advisory services based on data from individual bank accounts, the automatic optimisation of personal finances and cheaper credit based on a customer’s bank balance.
Business clients have lots of new options to look forward to as well. Smart accounting software linked to PSD2 can operate more autonomously than traditional solutions currently do. In addition, the automatic optimisation of financial positions within Europe will become easier, as will making liquidity forecasts based on aggregated account data.
Trust versus the user experience
As a customer, you’ll be asking yourself, To whom am I handing over access to my account data? Who will be able to make payments on my behalf? At the moment, only banks have access to account information. But starting in 2018, customers will be given more of a choice about who has access. They’ll also have the option to give third parties access to their current account in order to benefit from new services. Whether you as a customer actually decide to allow such third parties access to your payment data will depend largely on the level of trust you have in them. But an improved user experience will ultimately be the real deciding factor. After all, we’re talking about your personal data here.
If X, then Y
It’s difficult to know exactly what the impact of new developments like this will be. Most laypeople probably won’t think beyond the obvious. For example, a driverless car means I won’t have to steer the wheel and can read the newspaper instead. That’s certainly true, but if you think it through, you realise there will be fewer traffic jams and parking places, that car manufacturers will become transport providers and so on. It obviously makes sense, then, that PSD2 is about more than just gaining access to people’s bank accounts or creating a multi-bank app.
PSD2 is the tipping point for API technology to break through into the financial sector. At first glance, they may seem innovative, but open APIs have been an established feature outside the financial sector for quite some time. In fact, a real API economy exists which banks are only now entering gradually. Besides the mandatory PSD2 APIs, banks such as BBVA, Capital One and Crédit Agricole are unveiling other products and services via APIs. APIs have long been more than mere IT interfaces, and now represent a new product and channel catering for new and existing clients such as developers.
From closed to open banking
PSD2 marks the beginning of a wider transformation in the financial sector, and signals a shift towards a more open financial sector with more APIs than just those required by PSD2 – it’s a new trend popularly known as open banking. Banks and administrative authorities in the UK are now working together to create a joint Open Banking Standard.
The Brits are pushing for even faster change, and the standard should be fully implemented throughout the kingdom in just three years’ time. This ambitious plan is proof of London’s strong claim to financial innovation, despite the doubts of a number of experts and the Brexit vote. But for those with an open mind, the standard does offer interesting ideas and perspectives.
Big changes are just around the corner
Considering all the developments that are under way, PSD2 has already resulted in the industry picking up the pace. Existing, established players will be doing everything in their power to make the most of new opportunities. Customers, on the other hand, will benefit from better service, more options and more control over their relationships with service providers. PSD2 is an unparalleled driver of innovation in the financial sector, accelerating the transition to the new paradigm of open banking. This much is certain: PSD2 is not just about PSD2 any more.