Finextra PSD2 study explores implications for EU payments providers

European financial services organisations consider the European Union (EU) Payment Services Directive 2 (PSD2) a business opportunity as much as a compliance obligation, according to a Europe-wide study conducted by Finextra Research in association with CA Technologies.

The legislation, which appeared in the Official Journal of the European Union in January this year and has an implementation deadline of early 2018, imposes new duties on banks to open up access to their data and create a more level playing field for third party payment processors (TPPs).

Several banks and TPPs, the study reveals, have already begun their PSD2 compliance journey, and despite uncertainty concerning technical standards, it is clear the IT department has a pivotal role to play in driving the business change.

Many survey respondents advocate the use of application programming interfaces (APIs), to provide access to account information to third parties.

Nationwide Building Society has its implementation plan for open banking under way. “We have been thinking about this a lot at Nationwide,” says Nick Middleton, head of strategy, ayments at the Nationwide Building Society in the UK, but he also identifies a challenge related to co-ordination. “We have briefed the board and the executive committee and we have a programme up and running to deliver the underlying technology. But now we need an industry programme regarding the technical standards. We also need more co-ordination in the UK around the Open Banking initiative.”

There is a consensus that action is needed now by banks in advance of the technical standards being available. “We need to mobilise now,” says John Lyons, Head of Strategy and Business Development, Payments, at UK bank RBS. “Our customers are already talking about open APIs and exploring the potential for improved experience.”

Unsurprisingly the new generation of digital-first banks — legacy-free and typically already API-enabled — are bullish about starting now. According to Anne Boden, CEO of UK challenger bank Starling: “We will have open APIs. As soon as the technical standards are available we will make sure we comply. I passionately believe in PSD2 and if it happens and fulfils its potential it could revolutionise the way retail banking is done. The customer gains better service and therefore trusts the bank more and has a better relationship with their bank”.

The paper offers further insights from major market participants and provides a list of recommendation for banks and TPPs as they prepare for their journey.

The full report is available for download now.

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Comments: (1)

A Finextra member 15 March, 2016, 11:25

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On the face of it emerging banks are taking the lead by being able to accommodate new regulations into new product delivery and it isn’t surprising, given the fact that they are unconstrained by legacy systems and often have a disruptive business model.

This is putting pressure on the traditional banks to keep up with innovation. However, those forward-looking traditional banks organising and responding - very much as sleeping giants, they are waking and raising their game. More enablement of the traditional banking systems with new regulations, such as PSD2, will benefit the wider public as the regulation intended.

As it stands, traditional banks have legacy systems that will cost billions to overhaul. As the report indicates, this means that they are not as agile as emerging banks in bringing about change quickly. However, the industry is starting to see the huge opportunity that this creates and those able to deliver the combination will be very successful.