PSD2 already is, and will remain, a major disruptive force for the banking industry, a forced switch to the open banking model for all European banks. The implementation of this Revised Payment Service Directive will become a reality on September 14, 2019, as new requirements for authenticating online payments will be introduced as set out in the RTS.
PSD2 was first set in motion to foster diversification, stimulate competitive growth, strengthen transparency and decrease costs for users and consumers in a wider scope than its predecessor, the first Payment Service Directive (PSD).
The creation of this new level playing field for all actors involved in offering or facilitating financial services has the potential to shape the next banking experience. Banks will no longer only compete against each other but have to contend with new financial service providers, as customers’ account information and payment services data becomes the determining aspect of a new banking landscape.
That being said, PSD2 is poised to foster the role of banks in dictating how these new interactions must be carried out. Customers and businesses will still place their money safely in their bank’s current account, whilst using Third-Party Providers (TPPs) to manage it.
Through open Application Program Interfaces (APIs) established by the banks and unified under a global platform, new Third-Party Providers (TPPs) may have access to previously unreachable data, and also have the capacity to deploy innovative services. This will be achieved by benefiting from the banks’ robust compliance and existing infrastructure, which banks are required to maintain.
In a European context where mobile banking’s penetration numbers are surging consistently for the past ten years, PSD2 feels like a positive leap forward to reach more customers and invites new technology advancements.
With this in mind, banks are preparing to understand the threats that they are facing in this changing landscape. The magnitude and agility of their reaction will further define how relevant they will be to their customers.. It is undeniable that a fast adaptation will go a long way in finding out new ways to attract revenue.
As a matter of fact, API access can both imply a loss of revenue and the opening of new pathways to monetization. Substantial APIs with added features for banks, beyond the scope of payment transactions and balance that opens up with PSD2, may be leveraged to further access for TPPs.
Some banks have already explored other avenues, such as offering Payment Initiation Service Provider (PISP) and Account Information Service Provider (AISP) services to their own customers, which has an unlimited potential to streamline both banking and customer loyalty at once. APIs and additional service integrations with Third Party Providers may define how money is managed from now on.
In the long term, PSD2s’ ambitious regulations will help consolidate a European payments market that allows banks and TPPs to easily scale up their services. This needs to be done, however, under very clear legislation, which is one of the industry’s top concerns. New integrations and added value services will not only satisfy the consumers’ payment needs but will also help them understand their finances and make better-informed decisions.
Come September 14, Strong Customer Authentication (SCA) will become the new standard, yet there are still many unanswered concerns regarding security. PSD2 has promised to provide users with better security from both banks and TPPs and their respective services, which will ultimately integrate into a uniform secure framework.
The challenge is, at the very least, dual: banks will need to expose robust industrial grade APIs but also ensure the data is secure against unauthorised access. Customers will demand full-fledged security for their data as banks open access to infrastructure. Compliance becomes a key factor for everyone, particularly TPPs, as they may be held liable in the case of unauthorized access or a security breach. Ultimately, this liability is the determining aspect of earning consumer’s trust, especially for new players.
When competition enters the market as barriers are removed by PSD2, customers can easily choose new financial services providers and specific banking services from a wide array of entities, including fintech start-ups and challenger banks. In this new open banking world, accessing consented data from customers is not an obstacle.
With that in mind, banks are increasingly relying on companies to build infrastructures and APIs for them. Thanks to these comprehensive platforms, banks will be able to provide a full PSD2 compliant service by using cutting-edge technology-based measures and state-of-the-art innovations while reducing IT costs due to the enhanced security requirements and the open access to their APIs. This allows banks to gain competitive ground, to focus on a customer-centric strategy, by refining the user experience, and develop key partnerships and innovative labs with fintechs.