PSD2 is a work-in-progress EU Directive to be implemented in the domestic legislations by January 18, 2018. This regulation will shape the digital financial market, since it frames the rules for the new and traditional players. The rules PSD2 will introduce result in a much lower entry barrier to the sector which will enhance competition and further growing number of new services like price comparison, personal finance management, wealth management, e-commerce and big data-based (like IoT, telematics) insuretech services.
PSD2 extends the financial services market to new players like e-commerce marketplaces, tech companies, retailers, telcos or even utility companies with the aim to make the market more open for new competitive, innovative – mainly mobile – value added services. . However, it means good business opportunity to traditional banks, since they also could enter the competition for the others’ customers.
Key elements of the regulation are:
Defines two new service provider categories: Account Information Services Provider (AISP) and Payment Initiation Service Provider (PISP). These service providers, altogether called Third Party Providers (TPPs) are entitled to open access to the payment account data of the consumers (XS2A) whenever the consumer have given his/her definite consent to it.
Access shall be provided by the current account holder banks free of charge, even without having a commercial contract with the TPP on an open, standardized way, i.e. via open APIs. Using APIs is the quickest way to access a predefined set of data in a standardized, easy to process and safe form.
TPPs can be a threat towards traditional banks since they position themselves between the customer and the bank, so they will be the first meeting point for the customers to see, to understand, to choose financial services, financial service providers. It is also an opportunity for the banks, since AISPs could work as an additional, digital channel towards the legacy banks’ potential users.
PISPs and AISPs will have different regulatory requirements to meet with. AISPs will not be subject to have own capital requirements, however they will be required to hold liability insurance covering all the areas where they provide services. They will need to have themselves registered only with the local authority. AISPs do not handle or manage the customers’ bank account, hence will provide new value added services utilizing the data they get via the APIs, data received from the customer and from further data sources, like social networks, digital footprints etc.
PISPs will have the entitlement from the customers to do payments on their behalf, therefore the authorization requirements will be stricter under PSD2. PISPs will have to have own funds Capital of Euro 50 thsds at all times and their operational accounts will have to be held and handled separately from their customers’ funds they manage. Besides that, they will have to hold liability insurance as well. PSD2 also sets strict compliance requirements for them and for the company managers. Still, a PISP could provide several useful services to the customers using the data it can receive. Bill payment aggregator, wealth management, e-commerce services and many other value added services will gain market due to the new regulation.
Worth to follow the activity of the European Banking Authority and the Open Banking Working Group. EBA is responsible for working out the detailed rules and for the harmonized implementation. Open Banking Working Group – together with the Open Data Institute – works on the API and the open data issues.
About the author:
FinTech Group has solid knowledge and wide scale experience to create, customize business development strategies and implement related projects in digital industries with special focus on the fintech industry. They understand traditional banking and also the international and Hungarian fintech and insuretech service provisioning models and with these capabilities they drive our partners through their digital transformation. We believe that the fintech approach may help a lot to traditional finance institutions to create and implement their own digital finance service provider models and thus better serve their customers.