On 16 November 2015, the EU passed the Revised Directive on Payment Services (PSD2), and gave member states two years to incorporate the directive into laws and regulations. In the post PSD2 payment ecosystem, there will be three new actors, third-party providers (TPP), added to existing payment schemes between payers and beneficiaries:
1. Account Servicing Payment Service Providers (ASPSPs)
2. Payment Initiation Service Providers
3. Account Information Service Providers.
Under PSD2, third parties authorised as any one of these types of providers will have access to customer account, payment and transaction data generated by account providers. The new rules aim to promote pan-European competition in traditional banking and digital innovations that maximise consumer benefits.
Alignment with Open Banking Initiatives in the UK
In the UK, the Competitions Markets Authority (CMA) imposed remedies on the nine largest financial institutions which it required to also be in compliance with PSD2 following its review of competition in retail banking. The CME ordered the nine largest retail banks in the UK, to create the Open Banking Implementation Entity and collaborate with it to deliver:
(1) Open Data APIs to enable access to bank products and reference data, making available information on ATMs, Branches, Personal Current Accounts, Business Current Accounts for SMEs & SME Unsecured Lending and Commercial Credit Cards, by 31 March 2017 in a standardised way; and (2) Read/Write API’s that were compliant with PSD2, making available to authorised third parties the ability to initiate payments and/or obtain transactional data from consumer & SME accounts by January 2018.
As part of this mandate, the Implementation Entity is creating a developer toolkit to assist FinTechs and ASPSPs in accessing the API’s it has worked with the community in defining. Also following a CMA remedy , NESTA launched a £5m Open Up Challenge to encourage development of new banking services for small and medium enterprises.
As part of the challenge, a screened and selected pool of 20 participants will have early-stage access to “Open Up Sandbox”, containing anonymised UK banking transaction dataset and APIs aligned with the open banking standard. The use of the sandbox will help startups securely build and test innovation products to hit the ground running in 2018 alongside the implementation of PSD2 and Open Banking APIs.
Open Banking and Industry Sandboxes
PSD2 and the CMA Remedies open the door for a new cohort of FinTech solutions which deliver customer services based on transactional data previously only accessible by the account provider. Whether these emerge as stand-alone FinTech products or collaborations between third parties and retail banks, testing, viability assessments and adjustments will be an integral part of the evolving payments landscape. With a number of government and proprietary initiatives already underway, an industry utility function could be beneficial to ensure visibility and interoperability of the various testing environments.
Industry could also consider the making an anonymised set of transactional data available for testing purposes on an on-going basis, pooling resources in ensuring that access to this data is appropriately managed and secured, and usage analysed.
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