Industry preps for PSD2 & Open Banking roll-out
Written by Chris Lemmon
The long-awaited second Payment Services Directive (PSD2) is set to be implemented across Europe this weekend, while the accompanying Open Banking initiative will also take effect in the UK.
PSD2 aims to increase competition across the European payments industry, introducing new types of payment services and allowing non-banks access to payment rails, while enhancing the protection and security of customers. The legislation sets out a common legal framework for businesses and consumers when making and receiving payments within the European Economic Area (EEA), focusing on four main themes: market efficiency and integration; consumer protection; competition and choice; and security.
Open Banking is also set to launch in the UK on Saturday 13 January, and has been designed to enable banking customers to make the most of their financial data and securely access services from a range of companies. Firms other than a customer’s bank or building society will now be able to ask for permission to access their accounts, meaning banking customers can use financial services or account management tools directly from third party providers.
Much of the payments industry is in agreement that the introduction of both PSD2 and Open Banking will usher in a new era of financial services, with increased competition and greater consumer experience. “PSD2 will change banking forever and for the better too,” said Sophie Guibaud, vice president of European expansion at Fidor Bank. “Consumers will have much more access to innovative online and mobile banking services far beyond what we currently have.”
Commenting on Open Banking, Neil Tomlinson, head of UK banking at Deloitte, said: “Banks and FinTechs have been preparing for Open Banking for some time and it’s likely to be a watershed moment for the banking industry.”
Tomlinson, however, also noted that there will be barriers to overcome before the UK fully benefits from the opportunity that PSD2 and Open Banking presents. “Barriers are likely to include limited awareness amongst the general public and an aversion to sharing personal financial data. However, as new, innovative and more beneficial banking products and services enter the market and are shown to be secure, banks, FinTechs and others will have the opportunity to realise Open Banking’s true potential.”
Fidor Bank’s Guibaud also expects the changes to be gradual: “With the deadline passing, consumers shouldn’t expect to see immediate changes to how they bank. For example, one part of the regulations, the Regulatory Technical Standards on payment security, won't actually come into force until 18 months later.”
Commentators from across the industry expect the introduction of PSD2 and Open Banking to spur the incumbent banks to improve their current offerings, in order to remain competitive against the upcoming challenger banks and FinTech companies. “The big banks will have to step up their game to remain competitive,” said Neils Turfboer, managing director of Spotcap UK and Benelux. “Open Banking will allow FinTech companies to challenge the status quo by offering new or similar products, with better customer service, swifter turn-around times and at a lower cost.”
Andrew Stevens, global banking specialist at software company Quadient, agrees with this sentiment, stating: “Banks should see this as an opportunity for change and a catalyst for greater customer experience. They need to engage and have a conversation with customers on their terms; providing the right message, at the right time, over the right channel.”
Daniel Kjellén, co-founder and CEO of Tink, believes that the regulation offers the incumbents a big opportunity to increase customer satisfaction, if they move early: “For the banks, first mover advantage will be huge. Those that embrace Open Banking and invest now in the power to innovate will be the winners. An ability to aggregate and create competitive personal finance management platforms will be the key to unlocking the opportunity.
“Paradoxically, increased competition will spell even greater collaboration between banks and FinTechs, as both sides wake up to the enormous potential a partnership can offer.”
The general consensus across the industry is that PSD2 and Open Banking will have a positive impact on the financial services industry, but will be a rolling process with this weekend as a starting point. Gavin Littlejohn, chair of FinTech industry body The Financial Data and Technology Association, and FinTech representative to the Open Banking Implementation Entity, concluded: “We are enthusiastic about the potential of Open Banking, which provides a direct feed into and out of accounts using tried and tested and highly secure standardised communications technologies.
“There is a lot of work still to do to bring the full benefits of Open Banking to UK consumers and businesses, and we now need to work closely with colleagues in Europe to align this solution to the standards being worked on there, but this is a momentous milestone.”