Ask The Experts: The Future of Banking & FinTech in Light of PSD2, Part 1

In part 1 of our interview series, 'Ask The Experts: The Future of Banking & FinTech in Light of PSD2' we interview Damian Richardson, Head of Innovation and Strategic Initiatives, Payments, at The Royal Bank of Scotland plc (RBS).

Background

Damian has specialised in payments for the past 25 years. He has worked for RBS for the last 18 years and his current role as Head of Innovation and Strategic Initiatives spans all types of payments, whether they touch on consumers, corporate or banks.

Open APIs Started with Open Banking

Question: PSD2 is expected have a significant impact on banking and banking functionality. The open API will bring major change. What was the bank’s reaction when learning about the new directive?

Answer: All this did not happen overnight. We have been involved in the regulation conversation for some time. The regulator’s desire for greater competition and innovation across the banking industry is well known and matched by banks. While the Directive is strictly speaking technology neutral, it is already common practice to adopt APIs in banking and other institutions. It is widely seen as the preferred approach and towards compliance with PSD2 third party access requirements from January 2018. As well the later expected mandatory Technical Standards (RTS) now being developed by the European Banking Authority (EBA).

In the UK, we are implementing Open Banking and the mandatory use of APIs that it requires in UK. The first phase of this program is live and the second phase, known as APIs for payments and data, will begin as of January next year.

Q: You are not referring only to RBS. You are saying that Open Banking applies across the UK? How does it compare to PSD2?

A: Open Banking is a Competition & Markets Authority and HM Government required initiative in the UK, where the major nine banks (the CMA9), including RBS, are cooperating on the opening up of their infrastructure. It is similar to PSD2, which also requires controlled Third Party Provider (TPP) access to permitted customer online accessible payment accounts/related data; though PSD2 has a wider legal scope. Open Banking refers to the opening up of the data and payment infrastructure of the banks, providing access to third parties where that is agreed by the customer. However, there are differences in terms of definitions relating to the customers that are in scope. Open Banking specifies the use of open APIs while PDS2 does not.

Other differences result from PSD2 covering only “payment accounts” and for TPP access need “online accessible payment accounts“, while Open Banking will eventually cover a much wider range of services. On the other hand the focus of Open Banking is on consumers and SMEs with turnover up to ￡6.5m. While PSD2 also covers corporates and in some countries treats some as microenterprises with consumer protection status. And of course Open Banking is a purely UK initiative for only nine banks, while PSD2 geography covers the whole European Economic Area.

Damian talks to us about the initial challenges and opportunities the new directive may bring, some concerns about security and changes we may see in the future for banking & FinTech. Read the full interview here.