Excitement is not a word usually associated with EU directives. But on 13th January when the Second Payment Service Directive (PSD2) was imposed of on all Member States the move was described as one of the biggest shakeups in banking history.
The open banking directive forces banks to make their customers’ financial data available to third parties via an Application Programming Interface (API). The aim is to give non-banking companies a chance to compete with more traditional banks. At the same time giving consumers more choice over financial products and services.
Fintech companies have been scrambling to get ready for PSD2. I got talking to Ben David, Co-Founder of Croydon based Scrummy Club, about the potential opportunities it opens up to businesses like his. Scrummy Club has created a loyalty based platform similar to a Nectar card which rewards people for shopping in local and small businesses.
Scrummy would use a bank’s API and create a transaction spotting service that links a customer’s bank account to Scrummy. The spotting service would then calculate loyalty points earned without the consumer having to change their shopping habits. Putting an end to the need to carry piles of loyalty cards and forgetting to use them.
The new EU directive could make the point awarding system frictionless for consumers and save them money. Chatting with Ben it was apparent that there has been real push-back and some teething problems. Banks on a whole have failed to get themselves ready for the new directive, to the frustration of many. There has been a real resistance from banks to hand over the monopoly of holding onto customer’s data.
In January a number of banks including RBS, Carter Allen and Bank of Ireland appealed to the Competition and Markets Authority (CMA) for an extension on the original deadline; with some banks being given up to a year to introduce the APIs which fintech companies like Scrummy Club so desperately need. There have also been timing issues as another component of PSD2, ‘Strong Customer Authentication’ (SCA), is running on a different timeline and is not expected to be adopted by all Member States until October 2018. SCA requires all online payments to be authenticated using at least two independent elements.
Despite all of this some banks, mainly challenger banks such as Monzo and Starling, have not only got themselves ready for PSD2, but aim to evolve their businesses using the open banking directive. Not only are they working to create marketplaces for their customers to go to source the best financial providers, they are designing APIs for 3rd party companies to build on top of their core banking platforms. It’s not only challenger banks that have embraced the new directive; HSBC has launched an HSBC beta app which allows customers to see all of their accounts, including those from rival banks on dashboard. This level of service would not have been possible without PSD2.
PSD2 looks set to disrupt the financial markets and further evolve an already flourishing fintech sector. It may be a little longer until we see real incremental changes, but when it does happen we should expect that it will impact companies at all stages, from newly formed start-ups to listed companies.