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More than regulation – how PSD2 will be a key driving force for an Open Banking future

More than regulation - how PSD2 will be a key driving force for an Open Banking future 1

By Ralf Ohlhausen Executive Advisor, at PPRO

Whilst initially seen as simply a regulation exercise, the second Payment Service Directive, also known as PSD2, has been a key driving force behind Open Banking, an initiative that presents a hopeful vision for the future of the financial services sector. Thanks to the advancement of technology, the payments industry is currently seeing disruption to legacy banking systems, and a move towards a world of Open Data. With Open Banking, third-party providers (TPPs) can offer customers a wealth of new and automated services beyond their standard bank offerings, such as what products to buy or even advice on who to bank with.

PSD2 has been created to ensure that banks create mechanisms to enable third-party providers (TPPs) to work securely, reliably and rapidly with the bank’s services and data on behalf of and with the consent of their customers. PSD2 requires EU member banks to give authorised, i.e. licensed TPPs, access to customers’ accounts either via Application Programme Interfaces (APIs) or their user interfaces. It also mandates the use of Strong Customer Authentication (SCA), which requires multiple factors of authentication from a customer to initiate electronic payments and grant access to transaction data.

Despite the progress of PSD2, however, there are still challenges to overcome to achieve widespread adoption and to meet Open Banking objectives. So, what are the current roadblocks that European banks and financial services need to overcome to make Open Banking a beneficial reality for all?

Delays to API development

A crucial factor standing in the way of the acceleration towards Open Banking has been the delay to API development. These APIs are the technology that TPPs rely on to migrate their services and customer base to remain PSD2 compliant.

One of the contributing factors was that the RTS, which apply to PSD2, left room for too many different interpretations. This ambiguity caused banks to slip behind and delay the creation of their APIs. This delay hindered European TPPs in migrating their services without losing their customer base, particularly outside the UK, where there has been no regulatory extension and where the API framework is the least advanced.

A lack of awareness

Levels of awareness of the new regulations and changes to how customers access bank accounts and make online payments are very low among consumers and merchants. This leads to confusion and distrust of the authentication process in advance of the SCA roll-out. Moreover, because the majority of customers don’t know about Open Banking yet, they aren’t aware of the benefits. Without customer awareness and demand it may be very hard for TPPs to generate interest and uptake for their products.

Recently some regulators and banks, such as the Central Bank of Ireland, have made decent efforts to raise awareness of the changes with PSD2 campaigns. But it isn’t reaching the general public. When it does, it’s often because of scaremongering or fear, uncertainty and doubts around data security fuelled by incumbents to protect their business. This also isn’t the right way to approach the issue as it will lead to people being more afraid, rather than aware. Instead, it is the role of payment service providers to educate their customers about Open Banking requests or opportunities, to ensure the public are aware of the changes to payment authentication procedures when SCA comes into play and are empowered to move their data.

TPPs have a real vested interest in getting customers on board with Open Banking. They should build on their customer relationships to grow trust and raise levels of education around the changes. When customers sign up for a new service, TPPs need to tell them explicitly what to expect before they have to do it, plus what explicit consent is required to access their account information in exchange for value-added services.

Outweighing the challenges with opportunities

Although the introduction of the PSD2 regulation hasn’t been seamless for the banking and fintech industry, it is set to offer many benefits and advantages for the end-customer, and the financial industry. In fact, the regulation will create an integrated and frictionless European payments system, that will provide the customer with more choice, control and security over their finances than ever before.

Ralf Ohlhausen

Ralf Ohlhausen

One of PSD2’s primary goals is to provide greater protection against fraud for banking customers, who may have previously been open to risk through weak authentication and unregulated data-sharing practices. The new rules insist on enhanced security requirements, including the use of Strong Customer Authentication (SCA) to protect customers while making electronic payments.

Furthermore, TPPs unencumbered by legacy technology have long been able to innovate faster than traditional banks. Now, this regulation will provide regulated and secure access to customer data, allowing them to develop products even more quickly. The new regulation also promotes technology on a European level and encourages fintechs to do what they do best: innovate.

It’s also important to not forget that PSD2 regulation increases market competition allowing customers to choose a wider range of suppliers for their banking and payment services without having to switch their bank for that. The decoupling of banking services from the underlying account infrastructure will make it easier for customers to opt for the banking services that best fit their needs. It also increases the number of financial providers, services and products which customers will be able to choose from.

The future of Open Banking

The financial services landscape is becoming a firmly consumer-centric environment. Across the UK and Europe, we’ll continue to see the rollout of technologies that put control in the hands of consumers. Open Banking will be pivotal in its role, opening up new avenues and opportunities for both banks and payment service providers (PSPs).

Thanks to Open Banking, the ability to share data securely in the retail banking sector has led to a sophisticated ecosystem where the customer is in charge of their payments and choice of banking services. Over the next decade, we should expect to see the same level of transformation in our digital services and data sharing, leading to a complete rebalance of services where customers will be able to actively own their data and use it the way they like.

Europe is currently leading the Open Banking race, so the successful implementation of PSD2 and SCA is extremely important to maintain the lead and build a future with Open Finance and Open Data as well.

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Martin Lewis financial education textbook rolled out to 700 schools across the UK

Martin Lewis financial education textbook rolled out to 700 schools across the UK 2

The first ever financial education textbook to hit Northern Ireland, Scotland and Wales will be rolled out over the next 15 months

Today, Young Money announces the launch of the first ever financial education textbook to hit schools in Northern Ireland, Scotland and Wales. Over 45,000 books will be sent free to schools over the next 14 months, as well as an accompanying teacher’s guide (available digitally). The textbook will also be available as a free PDF download to anyone who wants it.

This launch follows the successful roll-out of the textbook in England. In November 2018 340,000 copies of the very first financial education textbook in the UK, ‘Your Money Matters’, were delivered into English secondary schools. This was funded by Martin Lewis, the Money Saving Expert, with a personal donation of £325,000 to the financial education charity Young Money to develop and distribute this milestone resource and accompanying teacher’s guide.

Aimed at supporting the financial capability of those aged 15 to 16, the reality is that the textbook has been used across multiple year groups and within a wide range of subject areas.

Since being delivered into every state-funded secondary school in England, the Money and Pensions Service funded an evaluation of the impact that Your Money Matters has had:

  • 89% of teachers said that Your Money Matters would improve the quality of financial education in their schools.
  • 88% of teachers said the textbook would increase their confidence to deliver financial education.

Subject Head at a Community school, said:

‘Excellent resource! Much needed for youngsters. We are very grateful to have received the textbooks and received excellent feedback from students. One student told me that our Financial Capability lessons changed the way her parents look at finances and motivated them to change the way they deal with money as a family.’

A Year 12 student, commented:

‘It’s so broad as well – if you want a general outline it is perfect for that. I actually brought one home so I could look through the university stuff. My older brother wanted to know about a work pension… I said ‘I have this textbook’ so he looked at that. He found it useful – it had the general information that he needed.’

Following the success that Your Money Matters has received in England, the Money and Pensions Service and Martin Lewis are splitting the cost of the £368,000 project, funding Young Money to develop versions of the textbook for Northern Ireland, Scotland and Wales. State-funded secondary schools in each nation will receive both printed and digital copies of their textbook over the next 14 months:

Northern Ireland – January 2021 (12,000 copies in total)

Scotland – March 2021 (21,500 copies in total)

Wales – September 2021 (12,500 copies in total)

What is in the textbook?

The educational textbook contains facts and information as well as interactive activities and questions for the students to apply their knowledge. The chapters are as follows:

1. Savings – ways to save, interest, money and mental health
2. Making the most of your money – budgeting, keeping track of your budget, ways to pay, value for money, spending
3. Borrowing – debt, APR, borrowing products, unmanageable debt
4. After school, the world of work  student finance, apprenticeships, earnings, tax, pensions, benefits
5. Risk and reward – investments, gambling, insurance
6. Security and fraud – identify theft, online fraud, money mules

Whilst the key financial topics will remain largely the same, a review in each nation, consisting of focus groups with teachers and devolved government representatives for education, is being conducted to identify the amendments required. This will ensure that the textbook in each nation maps to the respective education curriculum as well as taking into account the specific needs and financial legislation in each country.

Once complete, up to 75 copies will be delivered for free into every secondary school in each nation.

Why do we need the textbook?

Financial education is part of the national curriculum for every nation in the UK. Whilst integrated into each curriculum in different ways, it is an important part of secondary school education. Various pieces of research have identified that teachers’ confidence in delivering financial education is relatively low – there is little training provided to support this – and the degree to which young people receive financial education in school is hugely variable.

The textbook addresses this by covering key financial information in a relevant and engaging way for students. To accompany the textbook there will be an online teacher’s guide which will support teachers in each nation to use the textbook to enrich their own financial education provision in a variety of ways.

There is a strong need to help young people understand financial matters. For example, fewer than three in ten 14 to 17-year-olds plan ahead for how they’ll buy things they need, and one in ten 16 to 17-year-olds have no bank account at all. Gaining knowledge and confidence in financial issues is crucial to leading to better decisions now and in later life.

Martin Lewis, founder of MoneySavingExpert (though donating in a personal capacity) comments:

“The pandemic has shown the lack of personal financial resilience and preparedness of the UK as a whole. Not all of that can be fixed by improving financial education, but a chunk of it can. Of course, we need to educate people of all ages, yet young people are professionals at learning, so if you want to break the cycle of debt and bad decisions, they’re the best place to start.

I was one of those at the forefront of the campaign to get financial education on the national curriculum in 2014, and we celebrated then thinking the job was done. We were wrong. Schools have struggled with resources and there’s been little teacher training. Something else was needed to make it easy for schools and teachers. So even though I questioned whether it’s right that a private individual should fund a textbook, no one else would do it, so I put pragmatics over politics and did it in 2018.

I’m delighted that now we’ve proved the success of that book in England. The Money and Pensions Service has agreed to team up to provide this much-needed resource for the rest of the UK’s nations – adding a rightful sense of officialdom to the whole project.”

Sharon Davies, CEO at Young Money and Young Enterprise comments:

“We are thrilled that Young Money is able to develop the Your Money Matters textbook for every UK nation. Financial education is critically important for all young people, and it is fantastic that the difference this has already made within England can now be extended to Northern Ireland, Scotland and Wales. We look forward to working with our partners in each of these nations over the next year.”

Sarah Porretta, Strategy and Insights Director at the Money and Pensions Service comments:

“We know that learning about money when we’re young can have a direct impact on the ability to manage money later in life. However, too many young people are entering adulthood without being prepared for the money-related challenges that lie ahead.

The launch of the Your Money Matters textbook in Northern Ireland, Wales and Scotland is a vital step towards more teachers having the confidence, skills and knowledge to teach financial education. As part of our UK Strategy for Financial Wellbeing, we want to see a further 2 million children and young people getting a meaningful financial education so that they become adults able to make the most of their money and pensions.”

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COVID-19: Encouraging more collaboration in the future of finance

COVID-19: Encouraging more collaboration in the future of finance 3

By Nick Offin, Head of Sales, Marketing & Operations at Dynabook Northern Europe

We are currently experiencing a once-in-100-year event which is having an era-defining impact on our lives. The coronavirus pandemic has overturned how financial services organisations and their employees both operate and, importantly, collaborate. Traditionally a sector which has arguably been slow to roll out remote working initiatives, it has seen an unprecedented shift to almost entirely remote workforces in response to the pandemic.

As lockdowns are loosened and economies are kick-started once more, FS business leaders are starting to consider the lessons learnt from these testing times and how they can be used to remodel the future world of finance.

Before the outbreak of the virus, Europe had been experiencing a lost decade of productivity, highlighting a need for transformation within many FS organisations. While it’s important to consider that the issue is not fixable using one solution alone, workplace collaboration is fundamental to not only boosting productivity but also enabling faster problem-solving and reduced risks, something which is even more important in today’s climate. Therefore, it’s surprising that collaboration has often remained one of the most under-valued and under-engaged workplace methods.

The right tools

In recent months, though, the tide has turned. Collaboration has become fundamental to business continuity all over the world as FS firms have made the rapid shift to remote working. While parts of the wider industry – particularly the digital-first fintech sector – are already fairly well positioned for mass remote working, some segments of more traditional financial services like insurance have undergone intense re-structuring as some employee homes have become trading floors.

The pandemic has compelled many FS businesses into a new reality where teamwork no longer means having to be in the same office, with technology a major driver for this seismic transition. Video conferencing has been heralded as the technology of lockdown, having seen extraordinary growth in usage over this period. According to a recent study, conferencing applications saw a record-breaking 62 million downloads in March of this year alone. Fintechs are well accustomed to using collaboration tools such as video conferencing and have integrated these solutions into their daily workflows and business operations. However, even traditional institutions who have little to no experience of remote working have turned to tools such as Google Meet, Microsoft Teams and Zoom to ensure remote employees and customers stay connected.

As a result of increased usage of video conferencing and other cloud-based collaboration tools, there has been a rise in demand for laptop and notebook devices amongst FS businesses as they look to provide employees with the right tools to enable successful home working. For the first quarter of this year, IDC found an increase of almost one-third in year-on-year demand for notebook computers and laptops across Europe.

Nick Offin

Nick Offin

FS organisations investing in new laptop devices need to consider a number of factors to ensure they are equipping their employees with a device that can enable successful collaboration. Factors like internal storage capacity, core processor speed and power, RAM memory, operating system updates, and more, all impact a remote employee’s ability to collaborate with colleagues and customers.

Another major consideration is connectivity. Without it, FS businesses can face costly downtime which can not only impact a business’s bottom-line but also its reputation. Avoiding this requires providing employees with a device which is fit for the job, armed with the latest WiFi network support, Bluetooth capabilities, and peripheral connections such as HDMI and USB ports. In addition, a reliable camera, quality audio and low fan noise have never been more important, with video calls such a prominent part of everyday business operations during the current climate.

Overcoming challenges to collaboration

With FS organisations operating in a highly regulated environment, fostering high-functioning and collaborative teams takes much more than just connectivity. Naturally, there are a number of security challenges which need to be addressed within a large-scale remote working model. The value of the data held by the financial services industry has long meant it has been a popular target for cybercriminals. According to recent research, during the pandemic cybercriminals have been increasingly targeting the FS sector, with attacks on banks and other FS firms such as phishing, fake apps, trojans and ransomware spiking by 38 per cent between February and March.

To give employees the peace of mind needed to safely collaborate with colleagues and customers, FS firms must in the first instance ensure devices are equipped with the right tools and security features to reduce the risk of cyber-attacks. Devices with facial or fingerprint recognition and hardware-based credential storage capabilities provide a secure first defence against cybercriminals, reducing the risk of unsolicited login to the device.

As more devices access potentially sensitive corporate or financial data away from the office or trading floors, this opens up more ways for cybercriminals to compromise networks. Other defences such as zero client solutions go that little bit further to ensure devices themselves do not retain sensitive information when not in use. Instead, information is stored on a central, cloud-based system so if a device is lost or stolen, this information remains secure.

According to a recent Gartner poll, 48 per cent of employees will likely continue to work remotely at least to some extent after COVID-19, versus 30 per cent before the pandemic. The shift in working practices has been a test but also a success, with many FS businesses overcoming a multitude of unconventional challenges to sustain team collaboration. While the “new norm” is perhaps a little uncertain, it has led to many firms rethinking their long-term business strategies to ensure this collaboration is front and centre.

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Securing customer communication is vital, even when it’s on personal devices 

Securing customer communication is vital, even when it’s on personal devices  4

By James Hall, Commercial Director, Striata UK

With cybercrime escalating in volume and sophistication every year, consumer trust is a bigger challenge for organizations than it’s ever been. And while legislation such as the EU General Data Protection Regulations (GDPR) and California Consumer Privacy Act (CCPA) have made things simpler by setting minimum standards for organizations to adhere to, they need to do more to truly guarantee trust.

They should not, for instance, assume that their responsibility is over once a document has been delivered safely to the customer. If a customer’s personal devices are unsecured, there is still a risk that one gets hacked or stolen. This means that confidential information sent by the organization could find its way into the public eye, or worse, get exploited for criminal purposes. Even if the organization’s own security protocols are watertight, it could still end up shouldering the blame or have its reputation tarnished.

Fortunately, organizations can (and should) do everything they can to ensure that customer communications are protected throughout the information cycle.

Customers face multiple threats 

When considering why it’s so important for organizations to protect customer communication even once it’s on the end device, it’s worth remembering just how many threats customers face.

The millions of mobile phones stolen every year alone represent a massive danger of identity theft. That’s before even getting to the number of people every year who fall victim to phishing scams or who have their information compromised after inadvertently installing malware.

According to Kaspersky Labs, the number of unique malicious objects detected by its web antivirus solution reached 24,610,126 in 2019. Some 85% of web threats detected were malicious URLs making the risk of a customer unwittingly clicking on a URL an ever present threat to data protection.

In short, while organizations have never been more aware of the need to keep their customer data safe internally, the threat to that data once it’s on the customer’s device continues to increase.

Data protection by design 

One solution to mitigate these threats is for organizations to bake data protection into the design of their customer communications. Data protection by design is about considering data protection and privacy issues upfront in everything the organization does, especially when it comes to customer communication. This not only ensures compliance with relevant legislation, it can save the organization reputational damage and, ultimately, revenue.

But what does data by design look like practically?

James Hall

James Hall

Well, encryption and password protection should be non-negotiable for starters. Encrypting and protecting important documents ensures that even when it resides on the customer’s smartphone or laptop, the information cannot be easily accessed if the device is stolen or hacked.

Encryption is a process that encodes a message or file so that it can only be read by the intended recipient. Encryption scrambles, or encrypts, data which the receiving party can only unscramble, or decrypt, using a key (a string of values or an application).

Password protection, meanwhile, means a document cannot be opened without entering a shared secret known only to the sender and recipient. Requiring a password to access a secured document not only adds another layer of protection but has other benefits. In the unlikely event that a document is sent to the wrong person, the incorrect recipient cannot open the document (personal information remains private) thereby avoiding a data breach.

Customer education is key 

While it’s obviously important that the organization does everything in its power to protect and encrypt information, customer education remains the most powerful weapon in its arsenal. Cybercriminals can find their way around new technologies, but tech-savvy customers are much harder to crack.

If an organization can help its customers avoid risky behaviour and protect their personal information, no matter where it sits, they’re much less likely to fall victim to cybercrime.That, in turn, means reduced reputational and financial risk.

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