PSD2 to foster an Open Banking 'APIculture'...

The European Commission is working to unify and to create an efficient and integrated market by putting in place several initiatives aimed to harmonised current local regulations. One of the most interesting which has driven a lot of attention is the so-called PSD2 ( Revised version of the Payment Services Directive ).

PSD2 directive contains 117 articles and will take effect by 2018. According to the EU, PSD2 aims to:

• Contribute to a more integrated and efficient European payments market
• Improve the level playing field for payment service providers (including new players)
• Make payments safer and more secure ( PSD2 mandates a 2- factor customer authentication )
• Protect consumers
• Encourage lower prices for payments

In order to improve the level playing field for playing service providers:

'Member States will have to ensure that credit institutions do not block or hinder access to payment accounts and that payment institutions have access to credit institutions' payment accounts services in an objective, non-discriminatory and proportionate manner'.

This effectively will mean that bank's monopoly on their customer's accounts information is about to 'disappear' as they will be obligated to provide access to customer's accounts ( as long as the customer's consent is given, of course!). 

On 23 February 2017, the European Banking Authority (EBA) published their final report on the draft regulatory technical standards (RTS) with clear specifications upon customer authentication and common and secure communication. Even RTS remains neutral on the technology and standards to be used for the implementation of the PSD2. Banks will most likely make use of Application Programming Interfaces ( API's) to provide access to customer's information.

This will enable third-parties to build financial services on top of banks’ data and infrastructure. For example, merchants like 'amazon' will be able to make the payment for you without a need to be redirected to another service like VISA or Paypal.

Personal financial business services like those offering by Mint, MoneyDance, PowerWallet or Fintonic, by aggregating information from multiple banks, could 'potentially' be offered across the single EU market.  

For many Banks, considering the current legacy infrastructure built before the pre- digital era, PSD2 will potentially involve a substantial increase in their IT operation cost to comply with new security requirements and opening new API's, but also can lead to new cross-selling opportunities.

New revenue models may come by monetizing customer data and insights through a 'bank digital marketplace', where third parties could consume these services under a subscription fee or any other API monetization models. Barclays, for example, has a subscription service SmartBusiness application for SMEs to monitor their finances in comparison to their 500,000+ peers.

PSD2 has the potential to set the path for driving an Open Banking culture and reshape the payment industry across Europe. It will bring major impacts for existing players to adapt their current offerings and be more agile to an expected increased competition

Some interesting examples of European banks who are leading the 'API culture' are:

Fido Bank

BBVA

Fidor

Saxo Bank