How PSD2 and Global Open Banking Affect the US

Woman using mobile payments online shopping and icon customer network connection on screen, m-banking and omni channel

The EU Revised Payment Services Directive, or PSD2, came into effect January 2018. While this expansive regulation includes numerous updates, the requirement for financial institutions to participate in an open banking system is arguably the most disruptive. To this end, PSD2 stipulates that banks must provide open application programming interfaces (APIs), which grant developers with programmatic access to previously proprietary technology. Additionally, banks are called to share banking data with third parties (with their customers’ permission).

In other words, this could represent a brave new world for the EU financial industry and consumers. The regulation lays the groundwork for an entirely open banking system that encourages collaboration over competition — and that many predict will be a catalyst for major fintech advances and innovations across Europe.

Most Banks Are on Board

Regulation of any type tends to have a bad rap among bankers. So, it may come as a surprise to some that the 10th Annual Temenos Survey reports eight in 10 bankers see open banking as more of an opportunity than a threat, and 62 percent say that they’re prepared to distribute third-party products through their own platforms and channels.

But, when you consider that new technology can bring new products and services to a bank’s core customers — which in turn generate additional revenue opportunities for financial institutions — banks’ widespread acceptance of the new system becomes easily understandable.

In pursuit of these new potential revenue streams, numerous banks are actively adopting advanced technology and engaging fintech companies in partnerships to provide their customers with the latest innovations. Banks are also increasingly providing seed money for fintech startups’ development — and even eventually acquiring these newer companies. The sum of these shifts is representative of an industry-wide acknowledgement of how new tech benefits stand to positively impact banking on a global scale.

As Open Banking Gains Traction Globally, the US Predicted to Follow Suit

Professionals within the US financial industry are observing the PSD2 rollout in Europe, along with open banking initiatives taking place across Asia, with great interest. As foreign banks, third-party fintech providers and customers begin to develop and streamline processes and procedures for operating within a fully open banking system, they are simultaneously building out a skeleton framework for the US to base its own open banking standard practices on in the near future.

Suffice to say, in the months and years to come, it should be fascinating to watch the ripple effects of open banking make their way across the pond.

John Mitchell is the CEO of Episode Six and an expert in the payments industry, with decades of experience in leading and growing startups. Prior to co-founding Episode Six, John was the CEO of Rêv Worldwide. Prior to Rêv, John was at NetSpend Corporation where he was the primary architect and strategist of NetSpend’s sales and distribution strategy.