PSD2, the European Directive on Payment Services in the Internal Market, has come into force, and both financial institutions and fintech firms need to ensure that they are PSD2-funtional, said Shahrokh Moinian, global head of cash products, cash management, Deutsche Bank. It was regulation-led, but make no mistake: this is the start of a deep-rooted and long-term transformation of the European payments market.
Payments in Europe have come a long way since PSD2’s predecessor directive established a modern and comprehensive set of rules for all payment services in the European Union (EU) and the European Economic Area (EEA), laying the legal framework for the Single Euro Payments Area (SEPA). That first payments revolution brought faster, more convenient and safer payments to millions of payment service users (PSUs). Today, however, we are on the cusp of a second, potentially even more significant, revolution that will ultimately affect not just payments, but banking services in general.
PSD2 aims to better align payment regulation with the current state of the market and technology, strengthen payment security and enhance consumer protection. Yet it goes further still: its purpose is also to shake up the European payments market by encouraging greater competition, transparency and innovation in payment services.
What will bring about this change is PSD2’s requirement to open up the payments market to third party providers (TPPs), obliging traditional account servicing payment service providers (ASPSPs) including banks to give them guaranteed access to the customer account information they need to provide their services.
While this prospect initially caused concern to some in traditional financial institutions, most are now embracing it as a timely and necessary stimulus to the industry to future-proof itself against a new age in payments and banking services. Given the clear benefits to customers, banks should be PSD2-functional and act on the European Banking Authority’s Guidelines.
PSD2 revolutionises the European payments market, opening it up to new players and technologies. The widespread use of standardised Open APIs will eventually result in a multitude of new value-added services for customers. Payments, across an array of devices and platforms, are becoming faster, safer, more reliable and convenient. Payment customers have routine convenient access to information from their accounts with different institutions.
Similar developments will extend to other banking services, with customers for example accessing stock portfolios, monitoring online securities transactions and managing borrowings all in one place.
In this new innovative ecosystem, the winners will be those who can exploit the full potential of Open APIs, leveraging their existing assets and collaborating with new partners. Contact us for more information.