PSD2 and the future of FinTech

PSD2 is about to change the game for good, for the better or for the worse. So, what’s happening? And how will that affect financial technology, or FinTech?

FinTech pioneers such as PayPal, the first FinTech to go global, have changed the way society sees online payments. That might seem like ages ago, but it’s been less than 20 years. And now it is time for yet another update.

PSD2, the new EU Payments Service Directive, went into force on January 13th, 2018, replacing the first EU Payments Service Directive from 2007. PISPs, or the Payment Initiation Service Providers we all use to make quick and easy payments on the internet sans credit card, stand to gain a sizable amount of power on the financial market thanks to this directive – it is estimated that banks will lose up to 9% of their retail payment revenue to PISPs by 2020 – but as always, with great power comes great responsibility. Banks, on the other hand, might find themselves feeling more than a little bit threatened, as they will be losing their customer data monopoly. So what does this mean for the players in the financial industry?

PISPs can now become fully legitimate payment institutions

After an application process including the submission of detailed information on planned security measures and proof they will be compliant with domestic regulatory authorities, PISPs will now be able to all but replace online banking altogether. For their part, banks will be obligated to open up their APIs, or application programming interfaces, thus allowing PISPs to access all of the customer data that was for their eyes only up until now. Banks will also not be able to prevent PISPs from accessing customer accounts except in cases of, for example, suspected fraud.

Possible financial repercussions for PISPs

While the above sounds like an indisputable win for PISPs, it is important to remember that the financial consequences of allowing this data to be stolen or otherwise compromised could prove severe. This will likely result in the necessity for higher spending on IT professionals whose job it will be to make sure this never happens. The question is which PISPs can afford to invest the necessary money in preventing such situations from occurring and pay up if and when they do.

New opportunities

While many banks will undoubtedly see the enactment of PSD2 as a threat, they might do better to see it as the opportunity for many different types of new and interesting cooperation with PISPs. Banks are often rigid, if extremely wealthy, well-established institutions held in check by their own red tape. FinTechs, on the other hand, tend to be smaller, more flexible and versatile, and much more likely to take a chance on new and potentially revolutionary ideas. It is possible that both sides of this issue stand to benefit greatly from this new directive if they choose to see it as the opportunity for mutual development.