Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The Europe-wide legislation is set to change the way that banks operate. Consumers will be able to instruct their banks to share data securely with third parties, making it easier to transfer funds, compare products and manage their accounts.
However, according to the Competition and Markets Authority (CMA) several of the UK’s major banks have been granted more time, after indicating that they would fail to miss the PSD2 deadline.
Barclays, Royal Bank of Scotland, HSBC, Santander and Bank of Ireland told the CMA they could not release all the data needed on their customers in the timeframe required by the new law. This indicates the ongoing technology challenge faced by banks.
While many the industry do not believe we will see an immediate impact, many think it will be a game changer for banking and fintechs alike.
However, PSD2 has also been criticised for not having the infrastructure to implement some of its proposals until mid-2019.
Here are some views from the market on PSD2’s implementation:
Lu Zurawski, solutions practice lead retail banking EMEA at ACI Worldwide:
“January 13, 2018, may be remembered as the ‘beginning of the end’ of the traditional retail banking industry.
“January 13, 2018, may be remembered as the ‘beginning of the end’ of the traditional retail banking industry”
“Thanks to a profound set of new rules by European regulators and the UK government, we may see the start of an era where consumers no longer hesitate to change their bank accounts or make more personalised arrangements in regards to their finances.
“Both the new EU Payments Services Directive (PSD2) and the UK Open Banking initiative have led existing banks to co-operate with third-party companies that from now on will be allowed to operate financial services on behalf of consumers. These new companies will be able to access account information and to perform transactions on behalf of consumers, obviously only with explicit permission from the account holder.
“In the next few months, we will see new providers offering so-called ‘account aggregation’ services. Those of us with multiple bank accounts will be able to access all of our private financial information in one place, without the need to log into separate applications. These providers are also expected to offer comparison services, showing fees, charges and features of different products. If consumers adopt these new services, our relationship with banks will eventually change.
“We are also likely to see major retailers experimenting with new payment methods. As more of us become familiar with mobile apps and ‘in-app” payments, it seems natural for retailers to offer a ‘pay direct-from-bank-account option,’ particularly if this is more convenient and if loyalty offers make it more financially compelling too.
“There will be few events in the retail banking industry as profound as the go-live of open banking”
“January 13, 2018 doesn’t signify the end of banking and there is nothing to stop existing banks from becoming account aggregators themselves. But there will be few events in the retail banking industry as profound as the go-live of Open Banking.”
Richard Ransom, head of business development, Bottomline Technologies:
“Open banking will change the game by enabling smaller fintech companies and challenger banks to compete more fairly with traditional financial services incumbents. The net effect will be a proliferation of innovative solutions for existing bank customers, with a greater level of financial products designed to fit the requirements of the new, digital landscape.
“Fintechs and banks are not the only benefactors. Over time, corporates stand to benefit tremendously from open banking and many of them have yet to catch on to all the positive advantages. Corporates, especially those that enjoy multiple bank relationships, should look forward to more convenient payment management across different banks via centralised platforms, enabling more effective cash management. Financial decision-makers must be better informed to comprehensively understand the benefits of open banking and know the right questions to ask their banks and internal stakeholders.
“Open banking will make it easier for businesses to use Faster Payments in the UK, on a multi-bank basis. Additionally, the New Payment Architecture currently being designed for the UK will make Faster Payments even more valuable. New initiatives such as “Request to Pay” and “Enhanced Data” will see the potential introduction of sophisticated electronic invoicing into the payment system, ultimately making it easier for companies to pay and get paid.”
Michael McKee, partner and head of financial services regulation at DLA Piper:
“PSD2 is a revolutionary piece of regulation that is likely to signal the end of the high street bank in the medium to long term. In one sense PSD2 is a reflection of the new digital economy and the regulation has the potential to transform further the UK’s payment services and retail sector. If traditional banks are concerned about the impact of PSD2, 13th January should represent a Big Bang moment for the UK’s financial services sector.
“PSD2 is a revolutionary piece of regulation that is likely to signal the end of the high street bank in the medium to long term”
“The UK is ahead of the pack already, via its Open Banking Initiative and the cluster of FinTech start-ups based in London. Non-banks now have a real opportunity to break into the market, offering payment and account services, independent of traditional banks – with the same banks required now by law to assist in the process.
“How quickly this revolution catches on will of course depend on the customer. But given the falling numbers visiting high street branches and increasing volumes of transactions occurring online or via smartphones, the slice of the pie up for grabs to new banking providers is significant.”
Alex Bray, assistant vice president, consumer banking, Genpact:
“Tomorrow marks a significant step forward towards open banking with the introduction of PSD2. The new regulation means banks will be required to make customer data more accessible than ever before to other financial services companies and payment providers through application programming interfaces (APIs).
“While this is a potential goldmine for fintechs which want to revolutionise the banking experience for customers, it poses significant challenges for banks which risk becoming a back-office utility. In fact, a possible outcome is that banks could end up surrendering their direct customer relationships, becoming a commoditised payment back-ends as new aggregators or payment initiators swoop in.
“For banks to take advantage of PSD2, they will need to find a balance between openness, privacy and data protection. At the same time, they will need to improve their analytics so they and their customers can make the most of the huge amounts of new data that will become available.”
“For banks to take advantage of PSD2, they will need to find a balance between openness, privacy and data protection”
Ben Boswell, vice president, Europe, for World Wide Technology:
“January 13th is meant to see the start of disruption for the banking industry. However, this kind of technology change can be very complex for banks. It involves dealing with very high-stakes application assurance, meaning the confidence to know that their systems are running, available and secure at all times.
“Banks are essentially service providers, because of the high level of technology infrastructure they provide around the globe. Therefore, the level of technology assurances they need are extremely high.”
“PSD2 will require banks to facilitate third party access to their customers account via an open Application Programming Interface (API). The software intermediary acts as a standardised platform that is a gateway to the data, making it essential that banks, financial institutions, and fintechs have the technology in place.
“All legacy applications need to be refactored to fit with the agile API infrastructure. Many banks currently use private APIs to improve information flow internally between legacy systems, so they already have experience of this kind of programming. But the technology and security implications of open APIs are far greater and require a high level of assurance.”
In the world of payment processing, treasurers and finance managers have benefited significantly from faster, more secure systems that have allowed for leaner and more progressive business processes. However, the waves of regulations in financial markets have led to tighter and stricter procedures.
The first half of 2018 sees the implementation of two major pieces of regulation – the Payment Services Directive (PSD2, which went live in January 2018) and the General Data Protection Regulation (GDPR, going live in May 2018), both laying important foundations to pave the way for a better and brighter digital economy.
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