by Srikant Ganesan, Managing Partner, Risk and Trading Solutions
The next couple of years are going to witness a string of major changes to the banking sector. Among them, the European Union’s revised Payment Services Directive (PSD2) gives third-parties access to the banks’ customer information. In a sector that’s been in a constant state of revolution since the Big Bang in 1986, PSD2 opens the door to a new phase of innovation and opportunity.
The European Union’s PSD2 will herald a new set of profound changes for the financial services industry. Under the proposed new rules, banks in the region will share account holder information with authorized third-parties. This will enhance competition between existing banks, help disruptor organizations come to the fore, and potentially usher in a new generation of online service providers which no longer need to authorize payments through traditional banks.
One of the main technologies that makes PSD2 possible is APIs. Broadly speaking, an API in the context of PSD2 could be used to provide authorized parties with secure access to databases of customer information from a variety of financial institutions. This creates an environment where authorized service providers can access and verify data in an entirely new way, potentially paving the way for a significant level of innovation as firms vie to create scalable services which suit targeted customer segments.
It is a massive opportunity for third-party organizations which want to increase transaction speed and potentially enjoy an improved cash-flow.
One of the challenges that these companies are going to face will be convincing consumers that their systems are robust and can be trusted with sensitive personal information. Working with established Fintech firms that can provide credible, secure access to financial institutions’ shared information will be a good first step.
A second step would be to include the financial institutions in conversations about new approaches. Financial institutions have a different perspective that could be very valuable when third-parties and Fintech providers are discussing innovation and potential developments.
PSD2 will help create a level playing-field from a consumer-data point of view, and potentially create the conditions for a significant level of innovation in the financial services sector over the next few years. As ever, organizations that engage with it are likely to be the ones that thrive.
Srikant Ganesan is head of risk and trade solutions at Risk Focus, a specialist technology solutions provider that works with organizations across the global capital markets.