PSD2 one month on. What's next?
Hopes. Talks. Speculations.
There’s no doubt that the EU’s payments directive, PSD2, has been a long time coming. But as the entire financial industry has had two years to implement the highly anticipated payment directive, there has been a lot of uncertainty surrounding PSD2.
Would the banks actually be able to build mature interfaces in time? When exactly would the final interpretations from the European Banking Authority (EBA) be ready? Would banks be able to leverage the fear of the unknown around PSD2?
Today, it's been one month since the final PSD2 deadline. To discuss effects of PSD2, our Connection Team Lead, Christian Panton, participated in a Fintech Matters podcast about the aftermath of PSD2. Listen to the episode here and consider whether or not PSD2 has delivered the open banking we were promised:
An evolution, not a revolution
Aimed to foster innovation, competition and more transparency in the financial sector, there’s no doubt that PSD2 sounds like a revolution to some.
For the first time, non-banks are able to access financial data and build services to the benefit of the consumers.
But in reality, change doesn’t happen from one day to another. The same goes for PSD2, which should be viewed as an evolution, not a revolution. It needs time to work, just like any other change.
As of now, one month after the PSD2 deadline, banks are still struggling to deliver mature PSD2 interfaces that will enable third parties to build stable services based on access to real-time data.
Therefore, it’s fair to say that the regulatory tools to innovate on top of financial data have been implemented in theory - but not in practice.
Many deadlines, much doubt
Most banks are fighting hard to build the PSD2 interfaces the third parties have been hoping for. But that’s easier said than done. It’s important to realise that not everything is in the hands of the banks.
The overall timeline of PSD2 has been strikingly compressed for legislators, banks and third-party providers alike.
In addition, the EBA’s interpretations of what the rules actually mean have come into the picture at a very late stage, which has made it hard for banks to live up to the legislation in time. Let’s take a look at a simple, yet crucial, example.
As a third-party provider, it’s important to know who the customer is on the other side due to AML requirements.
But even though it makes perfectly good sense to get details on the customer alongside the transaction details, it’s an area of PSD2 that has not been regulated until very recently - therefore, making it difficult for banks to have that functionality ready in time.
Opportunity, not (just) compliance
From banks to fintechs to financial authorities, PSD2 has been new to everyone. In a situation like this, the first step is always compliance. When we’ve passed compliance, it’s easier to focus on the opportunities that go along with PSD2.
Now, banks across Europe are starting to embrace the opportunities of PSD2 and actually provide the services within the same framework.
While the first wave of PSD2 and Open Banking was mostly about living up to the requirements of PSD2, the second wave of PSD2 is all about banks using it to their advantage.
By fetching data from other banks to build new services, banks themselves act as third parties and depend on the stability of the dedicated interfaces other banks are building- something that would not have been possible pre-PSD2.
The beginning, not the end
Even though PSD2 is celebrating its one-month anniversary today, we’re only seeing the tip of the iceberg of what Open Banking has to offer.
If banks truly want to embody PSD2 and everything it entails, the reward is big. By embracing the new opportunities, banks and financial institutions are able to build new business models and revenue streams.
In these cases, banks can make their services and products available through other channels, and therefore make it extremely easy for consumers to make use of their service.
But legislation can’t change everything, especially if the right mindset is not there. If banks truly want to be open and let other players innovate on top of all financial data, banks do not have to wait for legislation to handle these matters.
In an ideal open banking world, banks can decide to open up for more than just payment data, and give access to investment data as well.