Ian Clark, Senior Director, Solution Sales at CA Technologies, said: “The experts contributing to the white paper recognise that if they embrace PSD2, work in collaboration and build great customer experiences, they can turn a compliance obligation into a return on investment. They believe that PSD2 will be transformative, and see an opportunity for the development of new business lines, operating models and propositions to customers. The legislation will, they say, “build exciting new customer experiences”, “lead to innovation”, “revolutionise the way retail banking is done”, and “is about giving customers choice”.”
By standardising and securing how digital payments are made, PSD2 will make payments safer and more secure, increase consumer protection and convenience, and encourage lower prices for payments. The legislation, which appeared in the Official Journal of the European Union in January this year and has an implementation deadline of early 2018, calls on banks to give TPPs secure access to customer accounts, based on access to information about the payment account. This will contribute to a more efficient European payments market and create a ‘level playing field’ for payment service providers.
John Lyons, Head of Strategy and Business Development, Payments, at RBS says, “There is a world of discussion and debate required around the API economy: understanding the new dynamics, how it will be governed and managed and regulated, to be sure we are not putting at risk the assets of customers and shareholders. I think success will come to banks that are technically able and culturally willing to collaborate to build exciting new customer experiences.”
IT is driving the business change required for PSD2 compliance
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.
PSD2 will compel banks to facilitate access to their customer accounts and provide account information to third-party apps, assuming they have the account holder’s consent. Many respondents advocate the use of application programming interfaces (APIs), for example, 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, Payments 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 a major European bank. “Our customers are already talking about open APIs and exploring the potential for improved experience.”
Unsurprisingly the new 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 also provides five recommendations for banks and TPPs around PSD2:
- Get involved, give feedback, share concerns and contribute to solutions
There will be consultation phases at a European level and efforts at a national level to develop guidance – and taking part is the only sure way to have the views of your institution heard and to secure a role in achieving acceptable resolution of outstanding issues.
- Think now about a strategy—and monetize the PSD2 investment
The implementation timeframe for PSD2 might be too ambitious, but it will not be pushed back too far if at all. There is an opportunity for all players at this point to take advantage of PSD2 to build new business and generate new revenues.
- Start experimenting to test thinking early
Many argue that banks lack the nimble, iterative mind-set of the Fintechs. Now is the time to pilot new products and services that could flourish in a PSD2 environment. If you fail, fail quickly.
- Identify and address the challenges in providing open APIs
While PSD2 itself does not use the term API, and it is unlikely the technical standards will specify how access to accounts is to be achieved, there is already industry consensus that APIs are the way forward. Understand now what open APIs will mean for the IT infrastructure and governance, establish where the gaps are and options to fill them, and determine the potential to go even further than PSD2 to help drive new revenues.
- Take a collaborative approach – new ecosystems will emerge and benefit customers
PSD2 will unleash considerable new competition into the market, but while being realistic about this, players also need to partner and collaborate with new and existing providers to provide customers with innovative products and services.