PSD2 paves the way to innovative banking
Open Banking is bound to reshape the banking industry and its services. The driver comes from the EU in the form of PSD2, short for Revised Payment Service Directive, which opens up the EU payment market to companies offering consumer- or business-oriented payments based on access to information about the payment account. However, we’re still waiting for the influx of innovative services.
The directive was created to regulate payment services and payment service providers within the EU and the European Economic Area, aiming to boost competition and let fintech companies and other non-banks enter the payments industry. By doing so, the regulators expect to reduce costs, encourage innovation and improve consumer protection by standardizing the rights and obligations for payment providers and users across the region.
Although PSD2 has been out and about for a while now, unfortunately not much has happened in terms of end-user products and services. This doesn’t mean they aren’t in the making; most likely, new fintech companies as well as established banks and retailers are still looking for the killer business case, innovating and testing out new ideas. They are simultaneously trying to predict what their competitors are up to and how their clients’ behavior is set to change as the new rules and services come into play.
What's happening in the market?
While we’re still waiting for a flow of innovative products and services, we can definitely see some large players willing to experiment and a few countries, like Finland, rapidly adopting new concepts and ideas. It seems obvious that the first interesting things will occur in countries that have adopted instant payments, because such infrastructure complements and supports most of the theoretical use cases enabled by PSD2.
The rest of the market has adopted a ‘wait-and-see’ approach, currently focusing on solving the technical and legal challenges to correctly implement PSD2-compliant infrastructure. Thus, from a banking perspective, we can see segmentation taking place. Some banks are quick adapters with their own Open Banking platforms in place and actively promoting their offering through e.g. events like fintech hackathons; some have even created their dedicated brand specialist banks or branches for only Open Banking purposes. Others, in turn, strictly follow the regulatory agenda, adopting their solutions according to the legally defined timelines.
The regulators are also actively participating in the development of the market. The EU Commission and the European Banking Authority work to support the field in the areas of API standardization, regulatory sandboxes as well as regulation in regard to electronic identification and trust services for electronic transactions in the internal market (eIDAS Regulation), not to mention the integration of PSD2 and General Data Protection Regulation (GDPR). One of the signals of this is the approval of the Regulatory Technical Standards for strong customer authentication and common and secure open standards of communication.
Thinking of consumers
In all these changes, the customer is at the core. At first, GDPR and PSD2 might sound like inexplicable acronyms that have nothing to do with an individual consumer’s day-to-day life. Nonetheless, Open Banking can make financial services significantly easier and more efficient to manage, increasing their appeal in the eyes of end users. This also brings about a vast variety of business opportunities for all players in the field, including traditional banks with extensive customer bases and new fintech companies aiming to target the smallest of niches – just by serving them better than anyone else.
In a series of three blog posts, Tieto is diving into the world of Open Banking from different angles. The next blog post will look at Open Banking around the world. Join the journey!
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