PSD2 and beyond

Less than 18 months to go before one of the most disruptive regulations in the financial industry kicks in.

PSD2 (Payment Services Directive 2) is a European regulation that forces banks to open up their account (So called Access to Accounts) and payment infrastructure to third party payment service provides (TPP’s).

Opening up your systems, granting access to competitor banks and other commercial players on the market, and potentially losing the hard-earned touchpoints with your end client is not an attractive scenario.

To my surprise, a large number of European banks seem to consider this new regulation just another rule with which they need to comply. “We still have 18 months to go, the technical standards are not 100% complete yet, so what’s the rush?”

Banks that have spent some time working out the potential consequences and fully understand the impact of PSD2 on their banking model are actively working on their future offerings under the motto “Offense is the best defense”.

This new dynamic that will begin to play out in January 2018 will not only create opportunities for disruptive fintech players, but also for banks. Why wouldn’t banks be able to position themselves on the market with so called ‘consolidator services’ (accessing data from multiple competitor banks), optimizing, and even extending, the use of their existing payments network? The fact is that banks can rely on a loyal customer base, large IT departments, and related budgets. This is a luxury that most fintech start-ups don’t have.

Banks with a clear digital strategy do not see PSD2 as the finish line – as they know the banking landscape will continue to change. They are preparing for an open API environment that is not limited to Access to Accounts and payment instruction processing. It’s only a matter of time before the banks are pushed into an Open Banking API model.

However, banking services development over the past few decades has been focused on optimizing transaction flows and digitizing the back office paper-based administration. Front-end channels such as branch bank, home bank and banking apps have gradually been added to the architecture, creating even more complexity in the banking architecture. As such, implementing PSD2 services in this complex architecture is easier said than done. Solutions such as The Glue can help to reduce the complexity and prepare the bank for an Open Banking API model. But even with The Glue, the urgency remains. With less than 18 months to go, the clock is ticking…