Many readers will be familiar with the E.U.’s Payments Services Directive 2 (PSD2) promoting open banking, which was supposed to be adopted into members’ legal codes by January 2018. The first major delivery hurdle was in March of this year, when ‘account servicing payment service providers’ (mostly banks) were to have created API sandboxes for fintechs, etc. to access data and work on product development.
Our understanding is that many institutions missed that deadline. The fully go live date is September 14, 2019. This particular posting appears in The Paypers and discusses the attendant benefits of technology changes required to comply with PSD2.
“With just a few months to go before the final PSD2 (RTS) deadline hits, not even the legislators really know what shape the payments world will take following the full implementation of the Directive. While many payments businesses remain focused on compliance, the infrastructure and solutions being put into place to address PSD2 also present a variety of new opportunities.”
The author goes on to describe how robust APIs and access to accounts promote innovation and can change the services provided to clients, thereby offering more compelling products, leading to more sticky relationships. Other benefits include greater visibility into funds and the analytics to make better business decisions. But the major focus of the piece is on the intersection of PSD2 and instant payments (real-time payments).
We have covered this topic and the specific overlapping technology opportunities associated with open banking directives in our reports and engagements, including the resurgence of payments hubs, real-time payments and, of course, fintech collaboration.
“There is one key thing that PSD2 and instant payments have in common, and it can amplify when used in combination: immediacy. The ability to view, monitor, access, and transact across a business’ full range of accounts in real-time has a value that should not be underestimated…Full-service APIs and platforms are now starting to emerge (although somewhat independently of the PSD2 requirements) so as to deliver immediacy not only across the board and around the original payment, but also with instant reconciliation and refunds. This can help to deliver better cash flow and to achieve the potential for a real-time end-to-end payments journey – something that has not been possible before.”
In the U.S., open banking is more a matter of market adaptation as institutions realize the benefits of creating products and services based on APIs and often collaborating with fintechs. The real-time payments uptake on the B2B side (available now for more than a year) has been rather tepid, but should gain momentum in the coming year.
The Fed’s recent announcement about the development of their own real-time rails (FedNow), generally anticipated by the industry for the past nine months, should provide some underlying confidence for smaller institutions to get going on some initiatives. In any event, we agree with the author’s point about intersecting opportunities.
“The question will be who fronts that race and how. The move to real-time payments is extremely complex, whereas many banking operations and technologies lack agility and are far from ready. This in itself presents an opportunity for fintechs and other instant payment-ready players to offer their solutions as a service to others – an already emerging trend. Of course, the regulatory impact on the faster movement of money and information is still to be seen and those businesses investing in real-time monitoring and alerts will potentially place themselves ahead of the game. The regulators will catch up with these parties eventually as well.”
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group