How PSD2 and Open Banking Will Affect You

The Second Payment Services Directive or PSD2 comes into effect January 13, 2018. This open banking initiative will no doubt be a game changer in Europe and really for any retail bank or fintech that wishes to work with Europe.

Today we’ll give you an overview of what exactly PSD2 is. Then we’ll offer you the most up-to-date information coming straight from the banking and API specialists who shared the next steps of this often mysterious initiative at this year’s APIdays in world financial capital London.

What Is PSD2 Anyway?

As you can imagine, first came PSD, which was adopted back in 2007. It laid out rules and guidelines for modern payment services in the European Union which simplified payment processing throughout the member states. The goals of the first PSD were efficiency, innovation, cost reduction, and to open up the financial industry for new players and technologies.

As you can imagine, since there is a second round in such a short amount of time, given financial industry timelines, it wasn’t very successful. A decade is an eon in technology however, and regulations must be updated both to address the shortcomings of the first PSD while taking advantage of advances in tech.  

The goal of both directives is to make payment policies more equal across EU borders and all levels of financial institutions. The benefit is that the landscape becomes more competitive and smaller entities like fintech startups have a chance against established institutions. And that competition means that us as consumers should have better options and better user experiences, particularly in our online banking.

The movement to revisit and revise the original PSD was in part initiated by the September 2014 Fingleton Report, which was originally made to advise the top nine UK banks on data sharing and open data for banks. These were the recommendations from this report:

  1. Banks agree on an open API standard for third-party access.
  2. Banks should adopt independent standards that ensure data sharing meets all legal requirements of those involved.
  3. There should be an industry-wide approach established to vet third-party applications, which is then published as open data.
  4. All purchase and credit terms and conditions should be published by banks as open data.
  5. Credit data should also be made available as open data.
The objective of PSD2 is to take us into a much more transparent world of banking, which should only serve to benefit consumers and the third-party apps that want build to build on these newer, more open standards.

What Does PSD2 Mean for You as a Consumer?

If you are in the tech space or anything financial adjacent, there’s a lot we’ll talk about later in this piece. But first let’s offer the highlights of how it’ll benefit us as consumers. Just remember, this is a European Union mission. That means that only those banks must comply, but this is something that will put pressure on and affect all international banks, so it wouldn’t be surprising if U.S., Canadian and Swiss financial institutions, among others, follow suit.

Be sure to read the next Financial article: ProgrammableWeb's Most Interesting APIs in 2016: Finance and Banking


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