What will be the impact of Open Banking and PSD2 in the History of European Payments?
If you were to peer inside a payments time capsule, the contents would be humbling as you witnessed the origins of our industry.
The oldest items in the capsule would be the most charming, dating back to bygone eras such as 500 BC Lydia where irregularly shaped disks of electrum (a naturally occurring alloy of gold and silver) were used as the first coins to trade. Or 1659 Britain where a faded, rumpled piece of parchment on which is written the instruction to honour a £400 payment to a Mr. Delboe acted as the first ever cheque written.
Closer to modern times the items in the capsule would become more recognisable yet no less nostalgic, like the first plastic charge card used in 1966, the first ATM ‘hole in the wall’ that debuted in 1967 and even the advent of real-time payments in 2008.
These hallmarks represent transformational moments in the history of payments, but it’s hard to recognise them as such until enough time has passed to appreciate the breadth and depth of their impact on the entire industry. So what does that mean for January 13th 2018, the day Open Banking and PSD2 became a reality in the UK? Surely that too will someday have its place in the payments time capsule. But how will we reflect on it when the time comes? What impact will it have had on the payment landscape?
For now we need look no further than the fact that it’s a simple matter of banks relinquishing control of customer data to third-parties. These new approved entities will be able to make payments on customers’ behalf and collect information from many accounts to provide a single view of finances. This will certainly level the playing field between traditional financial service firms and smaller fintechs and challenger banks – but how will it ultimately impact the banking industry? Customers are the undisputed winners. We expect an influx of innovative payment products and solutions to be made available, but what about the ramifications for the traditional bank? Which of them will rise to the occasion and adapt to these changes to keep customers and win new ones – and which will be happy merely to meet minimum compliance requirements, surrendering their core customer relationships to the likes of Open Banking-enabled organisations like Amazon?
And how about Corporates? They may not yet recognise the full impact these changes will have on them, but it’s unquestionable that the long-term advantages will be significant, including for example real-time, aggregated cash positions across multiple banks in many countries. As for the effect of these new regulations on security, that’s another matter entirely. Fraudsters thrive on access and these changes will no doubt prove to be fertile ground for their endeavours, bringing about new threats no one could ever have predicted under previous rules of the game.
Ultimately, the detail of January 13th 2018 will evolve and set a new mark in history. Guessing is always a poor science and our collective thoughts and feelings on Open Banking and PSD2 will take many years to develop before logging itself into the next time capsule. All we know for sure is that the new digital journey in financial services has started and everything we held as true in the past is now open to change.
Ed Adshead-Grant is an experienced Fintech expert in the global Payments and Cash Management industry, driving secure business payment solutions in ACH, Card, SWIFT, Faster Payments, Blockchain, Cyber Fraud & Risk Management and more.