Open banking has the potential to enable seamless payment services between consumers and service providers. However, a significant proportion of banks missed the PSD2 testing deadline, meaning the promised benefits of open banking for consumers and fintechs will be delayed.
According to open banking platform provider Tink, 41% of 442 banks in 10 markets surveyed missed the deadline for the Second Payment Services Directive (PSD2) to provide testing for any third-party providers (TPPs) to test the APIs that banks expect them to use once the final PSD2 compliance deadline arrives on 14th September 2019.
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There are various speculative reasons why many banks are running late on their preparations for PSD2. One possibility is that banks underestimated the amount of work involved in complying with the directive. PSD2 requires involvement from various areas of a bank, including security, fraud prevention, and payments. In addition, PSD2 is costly for banks, as it is estimated that PSD2 compliance costs are almost €35m and another €15m for non-compliance.
PSD2 is a transformative legislation for the payments market, as greater collaboration between TPPs and banks through PSD2 will allow consumers to utilise financial services more efficiently and conveniently. While controlled, PSD2 allows TPPs access to bank accounts and bank data under the framework.
In turn, TPPs will be able to provide customers with innovative services, allowing consumers to better track their finances across all their accounts and conveniently set up direct debits.
But PSD2 will not just benefit consumers. The foremost benefit for fintechs is that the regulation will permit them to provide new services under PSD2 that would have not been achievable under traditional financial regulation.
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By GlobalDataMoreover, PSD2 will allow fintechs to increase scale on existing banking relationships, thus they will not need to build a huge customer base to leverage their innovative products. And under PSD2 fintechs will also get permission to go into customer accounts and set up recurring payments, thus further enhancing services for customers.
PSD2 could be hugely beneficial for both consumers and fintechs. However, if banks fail to meet the compliance deadline the benefits of PSD2 will not be realised. In turn, customers might move to banks that enable services under PSD2.
