Using PSD2 to Leap Forward in Open Banking

The European Union’s revised Directive on Payment Services (PSD2) has a compliance deadline of January 2018.  This is not a lot of time to make the technology and process changes required to reach PSD2 compliance. For those banks already progressing in their digital transformation, it may be an incremental and reasonable effort to incorporate the necessary technology and business change.  But, many banks have yet to embrace key components of a digital infrastructure.

PSD2 is an opportunity to capitalize on regulatory momentum to get digital transformation moving. The regulation serves as the impetus for banks to move out of digital inertia, align stakeholders and embrace digital transformation through a structured approach.  To this end, open APIs need to be at the heart of the solution.

APIs are the recommended technical means by which banks provide account access to third parties as part of PSD2 compliance.  Importantly, they are the mechanism to further a bank’s digital strategy by supporting new forms of collaboration with a whole ecosystem of business partners.  In this context, the approach to building APIs is critical.  Open APIs are fundamental to the creation of new “business mash-ups” and hence crucially important in implementing new business models.  An open API platform strategy leverages the bank’s core assets of trust, brand recognition and customer information while allowing the bank monetize core assets  building on the strengths of non-bank innovators that are often more agile and fast-paced in innovation. Furthermore, a PSD2 digital platform that is scalable and capable of hosting any kind of API can be leveraged beyond PSD2

To use PSD2 and open APIs to move aggressively down the path toward open banking, consider immediate actions in these three areas:

  • Build the business alignment and strategy to anticipate opportunities and threats and to define new positioning and determine monetization opportunities. 
  • Assess current Open API program capability and determine how to execute in the timeframes required. 
  • Construct an ecosystem of partners, FinTechs and developers that can help the bank evolve new business models around the Open API program.

The inability of banks to innovate leaves the door wide open for competitors.  PSD2 is an opportunity for banks to accelerate digital innovation and begin working collaboratively with FinTechs and other providers to create competitive advantage.  Time is of the essence though, as the rapidly evolving bank environment could soon outpace the bank’s window of opportunity.