This is the first article in the series ”Payment Service Directive II (PSD II)”
No other industry is in such a rapid transformation as the financial industry. It is not only driven by new technology such as Artificial Intelligence (and all what that implies for credit risk and personalization of financial services), but also changes in the legal landscape such as the introduction of General Data Protection Regulation (GDPR) and Payment Service Directive II (PSD II) in 2018. In this series of articles we will shed light on the PSD II, the EU “Open Banking” initiative. Whereas the first PSD was induced by the rapid changes in the financial market, the second version, PSD II, is set to catalyze and force new rapid changes in the market.
There are many good articles of the implications of PSD II. Instead of providing one more article to the already crowded space, we simply recommend you to read one or both of the following articles: Banking Hub (short and easy) or Whitepaper by Deutsche Bank (detailed).
Here’s a two- word summary: Financial collaboration
Here’s a two-sentence summary: With PSD II banks are obliged to offer the possibility for third-party payment services providers (TTPs) to integrate to banks infrastructure and data through an open APIs. This implies (with consent) at minimum accessing account data and being able to make transactions on behalf of the person.
Progress in the field
It is now only six months ahead of the implementation of PSD II (January 2018). From January banks have two years to adjust. The implementation is expected to come in four phases: starting with a minimum viable product (MVP) throughout 2018, and completed in Q1 2019¹. However, several large banks have already begun. Nordea who is paving the way in the Nordics is releasing a pilot test of their open API during the Autumn of 2017. Even though there are many initiatives to harmonize the API such as the recent announcement from the Berlin Group² or the German Open Bank Project, one can expect it to be many different APIs battling to become the standard³. There is an obvious first-mover advantage to begin the development early, i.e. to being able to control the formalisation of the one, the chosen, the API to rule them all.
There are numerous companies that have made a business out of having done multiple integrations with banks. Fidor Bank, Plaid, Instantor, Railsbank and Tink are examples of companies before their time. Throughout time with more harmonized APIs it will become easier to connect to many banks, but it won’t happen instantly.
PSD II and GDPR: A love story
It is an interesting combination the PSD II and the GDPR. Private persons have always owned their own financial data, but for the first time this really matters. Private persons have obtained a control position with the GDPR and the ability to move data easily with PSD II. In other words, banks and financial service providers will need to become much more customer-centric. Because for the first time in history one can swiftly change service provider and pick a basket of financial services from different actors.
We are welcoming the open banking of the future and the tectonic shifts in the legal landscape making it possible. In the next article we are interviewing another company who are actively working with PSD II. Stick around!
In the meanwhile, send us an email or give us a call to hear more about our plans with PSD II and the classification of transactions.
³ See also the dynamic list of open APIs in the financial sector: http://genome.dailyfintech.com/t/lets-build-a-list-of-banking-apis/201/33