16 November 2017
Why it is not wise to waste time with only a few months until PSD2 is the new reality for banks
With only a few months left before the implementation, it seems that the general opinion about PSD2 can be divided in two sides. On the one hand, there are the banks and consumers who don’t trust companies with bank details. According to research by Accenture, a clear majority of Brits is unwilling to share their financial data with those companies. On the other hand, there are those who see the possibilities of the new open banking ecosystem, where the consumer is in control to share the data with selected partners he trusts. In this blog, I would like to focus on the possibilities of Open Banking and to explore the chances instead of the setting boundaries.
When PSD2 is being rolled out in January 2018, it will be an important step towards a fully interoperable digital market. Consumers will profit from better services by third-party suppliers based on their banking account information, but banks, in general, see an uncertain future. ‘Many bankers fear that PSD2 will cause them to lose control of the client interface and so remain unsure how to respond to the PSD2. As a result, they follow a defensive, wait-and-see stance that is risk averse’, according to recent research from PwC.
The EU means business
Some banks in the Netherlands and Poland are even under investigation of the European Commission to find out whether they are deliberately preventing other companies to access bank account information. The inspections were conducted to make sure that the banks are already in compliance with PSD2, although this legislation will be in effect in January 2018. These conducts show that the European Union means business when it comes to creating an open banking ecosystem, so let us take that point of view here too.
One of the main advantages is that PSD2 offers the possibility to share bank account information with companies that consumers trust. This is a regulated process, which means that no data is shared with unknown sources. When consumers share data about their purchases, other companies can react on that with related services. This means that whenever someone books a flight, a hotel can make an offer for a room. This means that ads are always personal and relevant. That is a big difference with the online ads of shoes consumers keep seeing after their purchase, for example.
PSD2 will open the market for Payment Initiation Services (PIS) and Account Information Services (AIS). In my previous blog there is more information about these two types of requests within the XS2A spectrum. Payment Initiation Services can initiate a credit transfer in their own service and send it via existing banking infrastructures. This facilitates doing business with a foreign web shop, because it is no longer necessary to have a credit card or a foreign bank account. With PSD2 it will be possible to facilitate one payments service across the various European nations.
Personal finance management will become reality
Account Information Services are services based on the account information. This means that the consumer can have one overview with a combination of their multiple banking accounts. The next step in these services is that other financial companies will be involved so that consumers can have one overview of their saving account, pension and mortgage data. With this combination Personal Finance Management will become a reality with advice from a trusted partner (who has permission to work with it) about the shared data. The consumer will always have the best advice with the most recent data.
European banks will need to develop an infrastructure which enables data exchange to make this possible. In countries like Germany and France, it’s already possible to offer AIS with a technique called screen scraping. This means that consumers share their personal information with a trusted company to gather account information from their banks. In some counties, like in the Netherlands screen scraping is forbidden by law which means other technical solutions are needed to unlock account data in the new PSD2 era.
Standardized API’s across Europe
The solution can be found in Application Programming Interfaces (APIs). API’s are used for sharing data and interconnecting platform solutions with third-party providers (TPPs). The next question is if each bank has to develop its own API to unlock the data or should there be standard for API’s, so that it will be easier for the TPP’s to connect to the account? There are some initiatives across Europe regarding this standardization: In France, there will be one API which is set up by the major banks in that country, in the United Kingdom there is the UK Open Banking Standard and a European initiative is the Berlin Group Standard (don’t let the name fool you), which is now in consultation.
So yes, there are initiatives from banks to open up and join the new world of Open Banking. That is wise, because the European legislation won’t be delayed or withdrawn, so why waste any more time? With only a few months left, it is time to action for banks to develop API’s or to develop their own services for consumers. The possibilities for their own new services are there to take.