In this interview with Miroslav Stojmanovski, Software architect at our Banking and Finance unit, we discussed the aftermath of PSD2 and what does it mean for the European market and the ‘Open Banking culture’ in Europe.
PSD2 seems to be a game-changing regulation and companies have already started to look beyond its compliance. What does this mean for Banks and FinTech, for all parties involved?
It means a huge change or no change at all – depends on the viewpoint. We thought it differently at the beginning. It is a new revolution which does not disturb the market too much, the only difference is in the distribution of how data is collected. Big players have already rolled out their APIs and plan to monetize on bank aggregators. Banks are still the big players in the game and they are not losing control like the FinTechs thought they would. Instead, they partner up with FinTechs in order to remain leaders in the Financial industry.
The data provided differentiates a lot from one bank to another, which creates a great challenge for the FinTechs alike. One bank provides lots of data that we can re-use while others offer scarce data from which it is difficult to create modern services based on such a small amount of data. PSD2 is game-changing in terms that it is easier to start looking at that data and start developing applications. You have to think outside the box if you want to create something new. FinTech companies, however, have a huge penetration in the market and new and revolutionary solutions are already on the horizon.
In the past couple of months, Seavus has been working on implementing a PSD2 solution for a renowned Swedish Bank. Could you tell me more about the whole process?
Yes, we are still implementing the solution. Good news is that the Bank is open to sharing lots of data with the TPPs that we could use to make a likeable solution for third parties. In general, Swedish banks are much more progressive through working on transparency and loyal relationships and hence step against competitors. There are FinTech companies that are already working together with banks, for example, even core systems are no longer hosted by the banks - FinTechs provide this as a service whereas the data is collected through banks.
There are many layers till we get to that data, but luckily, our client is willing to collaborate and they want to provide an experience beyond the PSD2 compliancy. This is a win-win solution for everyone: for banks to gain more customers, for third parties and for the economy. With PSD2, loyalty comes indirectly since the banks themselves do not implement the end-services. Our job is to create a neat and standardized template that will make data more easily accessible to TPPs while remaining complied to PSD2 simultaneously. The sandbox will be available in March when it is expected most of the banks to publish their APIs at least in a sandbox format, and we expect successful applications when real data access is provided in September.
End-users have become more aware of the changes that PSD2 will bring. This makes the whole compliance process an even bigger challenge for FinTech companies. What kind of new solutions and services will arise and succeed the most?
As a regulation, PSD2 does not directly tackle end-users, unlike GDPR for example, with which they usually correlate the advantages of PSD2. End-users are not aware that the data that banks will transfer to third parties is their own personal data. The myth is that banks are the owners of that data but PSD2 aims to show the opposite: that the customer has control over their own data.
What does this mean? It means that whichever API for the banking sector in the EU can enter any bank and have the same functionalities. Let’s take PayPal for example: if a PayPal is registered in one country, it will have the same functionalities in any other bank within the EU. Banks will still charge a transaction fee but they would not have access how much TPP’s charge for it. Thus credit and debit cards will not be the only universal payment method but there will be an API that will aim to provide the same functionalities across EU.
Let’s take a look at the big picture. Will PSD2 unite the European market for financial services? Will it finally put an end to the bank’s monopoly and how will this change happen?
Well, both yes and no. It will not unify the system because, currently, each country has different specifications and legislation that is different from one country to another. The bank’s monopoly will not be defeated but there will be a new synthesis, just like credit cards disrupted the cash-society.
What will happen next? There might be a new payment method through wearables like phones, tablets, watches etc. PSD2 can unify the market by creating new entities, such as a virtual bank that will function like a true payment service provider or account information provider and offer all bank functionalities even though it lacks accounts and headquarters. This makes it even easier to onboard on such new bank since you already have all your data collected from other banks.
Seavus has been working on developing PSD2 (and GDPR) solutions that can help customers fulfil the regulation in no time. What can we offer to help banks cope with this regulatory tsunami?
First of all, we have a PSD2 API solution for Banks which offers regulation compliancy dedicated to any bank that wants to become PSD2 compliant in a fast and simple way. We work according to the Berlin Group Standard which is recognized in around 40% or EU institutions and national authorities. Then, we also take part in the creation of an ‘Open Banking culture’ that will open up a door to new services. Finally, our offer for TPPs can be applied to Banks as well.
Today, banks slowly leave the traditional mode and start to act as a TPP. In that sense, the bank itself may become a bank aggregator that offers data to other banks. In this way, the whole process would become more agile and new services will occur, such as a new credit scoring system could be created. These solutions will transform the Banking sector and help it to become more secure and more reliable than ever. For example, we can use an AI solution complied with PSD2 that can detect transaction patterns and give signals whether a certain customer is suitable for a certain credit or not.
Тhese topics of discussion will be further elaborated on a PSD2 seminar in our Stockholm office on February 21. We’d be happy to see you there.