Europe has seen a lot of buzz and discussions around the Revised Payments Services Directive, or PSD2. It hasn’t received a whole lot of attention in the United States—but that soon may change. And it needs to.
This new regulation, which aims to create an equal playing field for payments service providers, went into effect in January. Like many other initiatives in the European payments field, PSD2 is a mandate. It mandates banks to provide third-party providers and others who meet the requirements access to their customers’ bank account information, provided they have customers’ consent. This practice is referred to as open banking.
POTENTIAL USE CASES
There are many potential use cases for PSD2 and open banking, and one in particular would allow corporates to ask their customers for permission to use their bank account details and receive the payment straight from the customer’s bank, without any intermediaries. In other words, this could mean that corporates could get paid directly, and potentially much cheaper.
A few weeks ago, we ran a webinar on PSD2 and the event attracted almost 300 professionals. This indicates there is a great interest in what the PSD2 is and what benefits it can facilitate. However, the majority of our audience were not very familiar with the topic; only 3 percent responded to my very unscientific poll question that they had a good grasp on PSD2 and actively were looking into how they could make it benefit their organization.
Even though this mandate is now in effect, the open banking offerings from European banks vary considerably and it will be interesting to see what actually comes out of this in the end. Will PSD2 be as disruptive to the banking industry as some professionals claim, or will everything be mostly unchanged?
As PSD2 deals with new technologies such as application programming interfaces (APIs), there certainly is a learning curve for corporates. In the webinar, we asked our audience about their familiarity with open banking and APIs. Only 9 percent said they knew about both. The vast majority indicated they knew very little about these terms. Given these numbers, it is a fair question to ask whether or not corporates actually will look into, and actively pursue what open banking can offer. Just because banks are mandated to allow access does not mean corporates will jump through hoops to invest their valuable time to make any changes to their regular routines.
OPENING BANKING IN EUROPE VS. THE U.S.?
It is not surprising a regulation such as PSD2 is on everyone’s mind in Europe. With the mandate in place things are most definitely about to change. Banks will no longer be able to be protective of their client data as before, and new innovative players will certainly move in and offer products and services that European corporates can benefit from. In the U.S. this kind of mandate will most likely never happen. Instead, I think a development towards open banking will happen in the U.S. if pressures from clients, or other incentives move banks to consider opening their data on a voluntary basis. Indeed, there do seem to be some indications that U.S. banks are already realizing that this trend would actually open up not only their data, but potentially also new business opportunities.
In the end, corporates from both Europe and the U.S. would be wise to read up on PSD2. New technologies emerge in the payments field and some of them will most likely have a broad impact. Knowledge of these developments will position organizations well to reap the benefits offered.
Check out a complimentary recording of the webinar, PSD2 & Open Banking – What are the Implications in Europe and the U.S.?