Are PSD2 and Open Banking a threat or an opportunity for banks? It’s the question for which everyone would like to have the right answer.
But before trying to answer that, we must understand what PSD2 and open banking really means. Often associated, sometimes the two get confused, but they are different. The difference is that whereas PSD2 (the European legislation known as the second Payment Services Directive) requires banks to open up their data to third parties, Open Banking means that they do so in a standard format.
For us, in Banco BNI Europa, PSD2 not only means new obligations but also great potential and development opportunities for the future. What many haven´t realize is that like third-party providers (TPPs), banks can also use the data of other banks for innovative product offering – if they have implemented the digital infrastructure.For a Challenger Bank like us, that’s a path that we want to follow in order to reinforce our role as a leader in the Fintech generation.
With PSD2, the European Commission aims to improve innovation, increase consumer protection and improve the security of internet payments and account access. PSD2 introduced two new types of players to the financial landscape: PISP and AISP. AISP (Account Information Service Provider) are the service providers with access to the account information of bank customers. Such services could analyse a consumer’s spending behaviour or aggregate a user’s account information from several banks into one overview. PISP (Payment Initiation Service Provider) are the service providers initiating a payment on behalf of the consumer. P2P transfer and bill payment are PISP services we are likely to see when PSD2 is implemented.
Therefore, when PSD2 becomes implemented, banks’ monopoly on their customer’s account information and payment services will disappear and that will change the traditional banking landscape. Banks will no longer compete against each other’s but with everyone offering financial services.
In fact, with PSD2, bank customers, both consumers and businesses, can use third-party providers to manage their finances, while still having their money safely placed in their current bank account.
At the same time Banks are required to provide these third-party providers access to their customers’ accounts through open APIs (application program interface).
This will enable third-parties to build financial services on top of banks’ data and infrastructure. They enter in the market with new ideas about how to shape the banking experience but also without the heavy compliance and infrastructure which banks are required to maintain.
To be more precise, one of the most important points covered in PSD2 is XS2A (Access to Account) that allows third parties to access bank accounts to get customer data – only when the customer gives their consent – such as bank account balances or transaction history.
To explain it in a simpler way, at the moment, if you’ve got accounts with two different banks, you have to look at them separately, because the banks’ systems are incompatible. With PSD2 the new players will let you see them at the same time, which should make it easier to manage your money.
On the other hand, when you take out a loan, you have to show details of your finances to prove you’re good for it. PSD2 will let you provide that information online – for instance, by giving an investor one-off access to 12 months income and spending history.
For banks, PSD2 poses substantial economic challenges. They will lose not only revenues obtained for payment services, but also IT costs will increase due to new security requirements and the opening of APIs.
To fight against it, and at the same time going towards customer expectation and increased digitalisation, many banks start collaborating with Fintech, focusing on customer centricity and setting up innovation labs.
In fact, with PSD2 we are moving from banks to banking services.As Bill Gates said back In 1990, Banking is necessary, banks are not.
Banks and start-ups see an opportunity and are already building apps, usually dashboards where you get a view of your ingoing’s and outgoings.
Consumers become more digital and mobile and they are asking for financial service offerings that are faster, less formal, more personalized, easier to access and cheap. So far, non-banks have proven to meet these requirements in a more innovative and human-centric way than many traditional banks and costumers are starting to use them, instead of using traditional banking in day to day transactions. That explains, for instance, the increase use of PayPal.
Competition within the financial sector will increase, with banks find difficult to differentiate themselves in traditional services, due to the introduction of PSD2, technological innovations and changing customer demands.
There are several reasons for this. One is, that new entrants in form of non-banks will get easier access to the market after PSD2. The regulation removes some entry barriers to the financial market, and hence, more competitors are likely to emerge. Furthermore, customers can easily choose new financial service providers with the introduction to PSD2. This means, that customers will be enabled to create their own collection of smaller service providers instead of choosing one specific bank for all financial needs.
To move forward, we need to adapt to PSD2 as soon as we can. Being a small bank and wanting to make a difference in the banking system, we, as a European challenger bank we entered into a strategic partnership with NDGIT the provider of the first API platform for banking and insurance in Europe. With “PSD2 Ready”, NDGIT, the technology leader in the field of API management offers a complete solution that can be used immediately allowing Banco BNI Europa to be ready for the PSD2 challenger in a record time.
NDGIT product “PSD2 Ready” offers ready-made APIs with all functions for PSD2 and regulation are already included, from third-party management to PSD2 reports. The software can be flexibly configured for all requirements of complex banking IT and can also be adapted to the various options of the API standards and authorization options.
As mentioned before,at Banco BNI Europa, we see PSD2 not only as new requirement for Banco BNI Europa, but also as a opportunity for the future as we want to reinforce our role as a leader in the Fintech arena.