In the last couple of weeks or months, you may have received an email or letter from your bank informing you of changes known as PSD2 coming into effect in early 2018. If you’re the curious sort, you probably looked into it yourself - but, if like me - you saw an email with the less than compelling subject line of “PSD2 is coming” or something to that effect, you probably scrolled right on past it and went on with your day...
No, it wasn’t just some small and inconsequential change to your bank’s terms and conditions, it’s actually quite a big deal and could have the potential to change how we conduct our day-to-day finances forever.
So, what’s it all about? The very short answer? Banks are now required to grant access to customers’ account details to third parties (at the customers’ discretions of course).
The long answer is a lot more complicated but we’ll endeavour to provide a fairly comprehensive overview of the new EU regulation and what it will mean for you, for banks and for other affected parties.
The ‘2’ in ‘PSD2’ refers to the fact that it is a revised edition of the first Payment Services Directive which was introduced in 2007. PSD1 was designed to create a single market for the payments with the EU.
As time went by, and as customer demands changed and the market saw a distinct growth in new payment-related FinTech (or financial technology) companies, PSD2 seeks to level out the playing field to include all kinds payment service providers and not just traditional banks.
As previously mentioned, PSD2 requires banks to open their payments infrastructure and customer data assets to new forms of payment organisations. This means that banks’ application programming interfaces (or APIs) must be accessible, and they also must ensure strong customer protection through enhanced security measures. This will enable third-parties to build financial services on top of banks’ data and infrastructure.
The new directive aims to drive innovation and transparency amongst banks and fintech companies, reinforce consumer protection, improve internet security where payments are concerned, while also generating more competition in the market for the benefit of consumers.
PSD2 poses a real shake-up for banks because it introduces quite a few risks for them, chief among which is the threat of being reduced to a mere infrastructure provider by third party providers who’ll be able to position themselves between them and customers.
Commentators on PSD2 have noted that though open banking poses a threat to banks, it also serves a catalyst for growth and opportunity. Banks who focus on innovation, customer-centricity and collaboration with FinTechs will be those who emerge victorious on the other side.
Banks are going to have to work very hard to establish methods of combating new players stepping in on their existing business models. PwC suggests a few ways that they could do this; for instance, by offering competitive, user-centric services themselves or interfacing with other banks to provide a comprehensive service that improves the relationship with their existing customers and is attractive to new customers.
We’ve already seen banks experimenting with their APIs and collaborating with fintechs in the last few years (think Apple Pay and Android Pay) in response to changed customer expectation and increased digitalisation, so it will be very interesting to see what kind of customer-centric innovation we will see in the coming years driven by open banking.
Let’s hope it can only mean good news for you and your bank!
So, what will open banking mean for you in a more tangible sense, you ask?
Essentially, PSD2 will break down your bank’s monopoly on your data. It will allow a variety of businesses to retrieve your account data from your bank (always with your permission) to make payments. For example, in the next couple of years you could find yourself paying your bills via Google or Amazon.
The number of new services that could arise as a result of PSD2 regulation are numerous, as suggested by this list of suggestions from PwC;
Innovative payment services from merchants that wouldn’t require cards.
Apps that give access to information through a single touchpoint or an app that aggregates and monitors expenses across various different bank accounts.
Cardless withdrawal via NFC technology will become a convenient and popular option.
Already an existing technology, we could see location-based couponing gaining a lot more traction. This is where nearby companies reach out to you via your smartphone to offer discounts and coupons.
Instant P2P payments: Instantaneous payments via mobile wallet on many p2p accounts and towards operators with advanced features
Decoupled cards (debit cards not issued by, and not tied to, any particular bank) offering decoupled from payment accounts.
PSD2 shouldn’t be a cause for worry for banking customers, indeed it looks as if it’s the banks who are going to have to make all the effort to keep us interested as the market is opened up to newcomers, doubtlessly offering new and innovative digital financial solutions.
Here at bonkers.ie, we’re expecting to see some interesting things in the coming months and years...
... but for now, do you know how much your bank is charging you in fees? Find out here:
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