PSD2: Short Term Pain, Long Term Gain

The information on PSD2 can be overwhelming and confusing to both the average person and tech genius alike. This post aims to simplify the mandated requirements within PSD2 and provide insight on how Financial Institutions can embrace and respond to this initiative. Most importantly, it aims to raise excitement as this regulation will change the banking landscape forever, in favor of you - the bank’s customer.

The European authorities have largely decided that people, not companies, own the digital records associated with their accounts, mandating European banks to make it easy for customers to share their financial data and manage their finances with all Third-Party Providers (FinTechs and Merchants). FinTechs are eager to capitalize on PSD2 as it will standardize data sharing and enable new, non-bank entrants to offer banking services. Merchants also see PSD2 as a huge opportunity now that online payment options will include the ability to pay directly from the user’s bank account, instead of their debit or credit card.  This will cut out the middle man – reducing fees and complexity and providing an enhanced digital experience. More importantly, PSD2 will give the average consumer the power to choose - one of the main objectives of this mandate. 

PSD2 has the biggest impact on Financial Institutions. Now that the deadline has passed, commentators state that a majority of the Financial Institutions in the UK did not meet the target date. Security and strong customer authentication and access to accounts are the main building blocks of PSD2. To be successful, Financial Institutions need experts and developers, an open Application Program Interface (API) strategy, strong tools for customer authentication and the ability to maintain the platform. In the beginning, most Financial Institutions were entering this blind, especially those with headquarters outside of Europe. Deploying a new infrastructure on (mostly) legacy platforms and implementing procedures to maintain it are costly and multifaceted.  

The necessity to meet these requirements and security measures, allows an opportunity for Financial Institutions to either haphazardly build their own platform, or invest in a proven and reputable solution from one of the many industry-leading technology companies that have thrown their hat in the ring. If an effective solution is implemented, Financial Institutions will not only comply with PSD2, but deliver wider and more competitive offerings:

• Increase customer retention by providing customers with transparency and control of their data
• Facilitate a new revenue stream by offering new products and monetizing additional APIs 
• Expand and enrich service offerings to their customers by collaborating with FinTechs to provide meaningful engagement 

For banking customers (i.e. you), PSD2 is a revolutionary model for the future of Financial Services worldwide, shaped by the advent of consumer digitalization. It is a response to the mounting pressure for Financial Institutions to provide efficient and secure data access methods for their account holders.  PSD2 will provide the average consumer with fee protection and transparency, secure payment methods, the ability to choose who manages their financial data and an overall improved, seamless, customer-centric approach to everyday banking. With the customer being one of the key drivers behind this mandate, it is paramount that banks do more than just comply with PSD2 - they embrace it.

The objective of PSD2 goes deeper than data sharing or device-based disruption. It’s the leveling of the playing field that will allow for the creation of new, innovative business models that combine the best features of Financial Institutions and FinTechs. Innovation, strong security and joint development between Financial Institutions and FinTechs will provide unparalleled customer experience from start to finish. The whole world will be watching as the European member states roll out this groundbreaking directive and pave the way for a new era of FinTech.