PSD2 Directive: The era of open banking has begun in Europe

Following the first payment directive, the main achievement of which is the single SEPA payment zone, the EU begins the transition to PSD2. On January 13, 2018 the next stage of implementation of the payment directive was completed in the EU. By this date the banks had to bring their activities in line with the legal requirements.

The second directive has an even more ambitious goal than the first – to create a level playing field for traditional financial companies and new players that have emerged from digitalization. After all, one of the main requirements of the new legislation is access to customer accounts for third-party companies. In other words, the organisation which owns the payment account of the client (for example, bank), will allow other organisation (for example, a fintech startup) to get access to it through API and to use this data for the purpose of creation of new products and management of the finance under condition of the consent of the client.

For example, Bank A’s client wants to take a loan, but its financial institution offers a loan on unfavourable terms. Therefore, the user decides to use the services of a startup, which collects offers from all banks. Having chosen the best, the client does not need to go to “financial institution B” to tell the new bank his personal data – thanks to the open API application developers will do it themselves.

Other features of the directive include a reliable customer identification system, enhanced data protection when transferring data to third party providers.

Advantages for banks

The advantage of the new legislation for payment providers is obvious. They will have at their disposal data on customers, which can be used to create more efficient services. This means that they will be able to attract more customers. Thus, according to Accenture research, 9% of retail payments by 2020 will be made through PISP-providers (providers of payment initiation services).

But this does not mean that PSD2 is the end of the monopoly of banks in the payment services market. Rather, it is a catalyst for changes in retail banking services.

Igor Rusnak, head of the Open Banking Lab project at OTP Bank, spoke about the benefits of open banking for financial institutions themselves:

  1. Development of new solutions thanks to the connection of a developer community
  2. Broader innovation market analysis
  3. Improving client experience through convenient access to financial services in convenient channels
  4. New sources of profit for the bank – financial institutions will be able to sell their data as a service or charge third-party providers a certain fee for connecting to the bank’s interfaces.
  5. Distribution of financial risks from the point of view of IT development thanks to the involvement of new partners
  6. Reduction of expenses for IT development inside the bank due to connection of third-party providers

Are the consumers ready?

The likelihood that the market will be overflowing with new financial services in the coming months is minimal. The directive is not expected to be fully operational until the time, when the technical standards underpinning it will be finalized and new data protection rules will come into force.

The success of the transition to open banking will depend directly on the reaction of consumers. And their willingness to allow third-party companies to access their financial data.

A recent study by Accenture found that two-thirds of customers are not yet willing to share their data with third-party financial service providers. Trusting information only to their bank.

One of the main reasons is fear for data security. However, the requirements of the directive to protect personal data make such fears unfounded.

Nevertheless, the official launch of Open Banking has already provoked new movements in the market.

The Directive applies not only to countries that are part of the Eurozone. Transactions where one side of the transaction is in Europe are also subject to PSD2.