The PSD2 timeline has come to an end – having been implemented on January 13th. It heralds a fundamental change in how money moves online in Europe. But who stands to benefit? Is it a zero-sum game between the banks and fintechs? Should consumers be excited or cautious?
A long-term shift towards a more integrated European payments market
PSD2 accelerates a long-term trend towards an increasingly integrated European payments market. PSD1 was the foundation for the release and expansion of the Euro and, in particular, SEPA, the set of rules that determines how euros are transacted in the banking system.
>See also: PSD2: Everything YOU need to know
As commerce has continued to shift online and digital payments become more significant, PSD2 has been introduced to foster competition, protect consumers and enable new internet business models.
Although progress with PSD1 has been slow-it took 12 years from 2002 for all of the infrastructure mandated by PSD1 and SEPA to be fully implemented-PSD2 will take about six years with even further reaching consequences. Uniquely, everyone stands to benefit from the new regulation: from fintechs, to consumers and the traditional players, if the potential of PSD2 is fully realised.
Paving the way for new fintech business models
With the creation of two new licensing regimes-AISPs and PISPs-new kinds of fintech business models will emerge. They both handle financial information with people’s consent; the former has a “read” access and the latter has a “write” access, meaning it can move money on your behalf.
>See also: Countdown: One month to go until PSD2
Truelayer is a perfect example of this kind of startup using this new regime to provide fintechs with access to bank data via APIs, and is one of the harbingers of an even stronger and more exciting fintech ecosystem in the region, a sector where cumulative investment is forecast to exceed $150bn globally by 2021, according to PWC.
Tackling fraud and boosting consumer choice through better interconnectivity
Optimism from fintech entrepreneurs will be matched by optimism from consumers for a more secure internet. PSD2 promises to break down barriers to bank account information that has historically been kept away in silos in servers within financial institutions. In this context, open banking is arguably akin to the birth of the internet itself, promising to radically shake up the payments landscape to the benefit of consumers.
By enabling secure, third-party access to this dataset, it will facilitate bank account verifications to ensure that legitimate consumers and businesses are exchanging funds online. This will be a big step forward in the fight against online fraud.
The potential for innovation stretches far beyond bank account verifications, however. That’s just the first step of a longer journey of Europe’s fintech ecosystem building an exciting variety of financial products based on a better understanding of how we manage our money.
Yet, a recent study by Which? found that just 92% of the public have heard of the term Open Banking. So now is the time to talk to consumers about the benefits they will reap as a result of its implementation.
Who will emerge victor, fintech or the banks?
On the one hand, nimble, tech-savvy fintechs like Monzo and Zopa have a lot to gain by better connectivity to the banking infrastructure and with each other. On the other, it’s encouraging to see the banks’ preparedness to embrace this disruption and build new experiences for consumers. According to PWC, 84% of banks foresee strategy changes due to PSD2, and HSBC has already introduced a Beta app that shows all balances from other banks in one place.
However, this isn’t a zero sum game between fintechs and the banks; if anything, the victor will be consumers and small businesses. Ultimately, we’re on the brink of a new technology versioning of the whole market that can be fruitful for all players.
The devil is in the technical detail
Consistency and quality of API design will be crucial to balancing healthy competition between banks and fintechs with consumer protection. This is a complex undertaking: the abstractions of the API are really important and a lot of thought needs to go into future-proofing it because creating and rolling forward to new versions involves a lot of toil. Getting those details right now will be fundamental to the longer-term success of the project.
Sourced by Iain McDougall, UK country manager, Stripe
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