PSD2 and Europe’s Open Banking Mandate – a PCM report

30. October 2017.

In a new report, PSD2 and Europe’s Open Banking Mandate, we aim to analyse the implications of the revised Payment Services Directive, PSD2, for the European banking industry and Open Banking challenges both for banks and FinTechs.

The adoption of the revised Payment Services Directive (PSD2) is formalising the relationship between Banks and FinTechs by establishing Open Banking, providing open access to customer account data and the payments infrastructure.

This is expected to stimulate the FinTech market to develop new integrated service models for both consumer and business customers. This regulation is a reaction to the growing demand from customers as mobile and internet applications have become widely adopted driving expectations in how services should be delivered across all industries.

Other market segments have adopted Open APIs to respond to this demand and

have shown that innovative applications can grow business and change customer behaviour.

So far, the general response of Europe’s bankers to PSD2 is one of uncertainty. Many bankers fear that PSD2 will cause them to lose control of the client interface and so remain unsure how to respond to the PSD2. As a result, they follow a defensive, wait-and-see stance that is risk averse.

In contrast, a few innovative banks, including the new digital challenger banks, along with some FinTechs have preempted the implementation of PSD2 pursuing strategies aimed at winning a leading role in the future. Progressive banks have understood that they need to shed their past and transform into digital service banks if they are to prosper in a banking environment dominated by digital savvy customers.

Conversely, FinTechs have realised there are key regulatory and compliance roles which banks undertake so it is necessary to partner with them. But none of this is without challenges for all players involved – not least from the uncertainty over finalising the last element of the regulations – the Regulatory Technical Standards (RTS).

Even so there is a clear model for the operation of Open Banking and much work being undertaken to establish ‘standard APIs’ so banks can invest in technologies to meet their obligations and FinTechs consider offerings to be developed.

PSD2 challenges both the banking industry and the emerging FinTech sector. An irrevocable shift to Open Banking in Europe has become inevitable, and it offers both banks and FinTechs opportunities to differentiate and generate new revenues.

The objective of the report is to analyse the implications of the revised Payment Services

Directive, PSD2, for the European banking industry and Open Banking challenges both for banks and FinTechs. In short Open Banking leads to more transparency, customer choice, control over financial assets and personal data. Open APIs are a key enabler of this evolution.

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Alex Rolfe

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