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Open Banking / PSD2

The Movement That is Changing
Retail Banking

The Movement That is Changing Retail Banking

What is Open Banking and PSD2?

Open banking refers to a series of reforms to how banks deal with financial information. It arrived alongside a regulation in Europe named “the second Payment Services Directive” (PSD2), which came into effect on January 13th, 2018, and was mandatory for banks to implement before September 14th, 2019.

Open banking is the practice of sharing financial information electronically, securely, and with the customer’s prior approval. Application Programming Interfaces (APIs) allow third parties to access financial information efficiently, hence leveraging the development of new apps and services. For any third party to have access to customer data, the customer will have to first opt-in.

The mandatory/regulatory adoption of PSD2 means that banks are required to give their customers access to their own data, subsequently allowing customers to provide that data to third-party entities.

Why is it important?

Data is key! The most important asset in the world today—and banking data is the “cream of the crop,” since it provides insights into how, where, and when consumers and businesses spend money, invest, and ask for credit.

Open banking allows for a myriad of third-party services to aggregate data from multiple financial institutions and let consumers analyze their spending and earnings, allowing them to better budget for the future. This was the first “common” use of the newly available information.

Other uses will surely arise or be more commonly adopted soon, with incumbents and new entrants vying for new opportunities, revenues, and information.

Encouraging competition

Alongside this disruptive change, open banking is currently encouraging greater competition between banks (and other fintech solutions) as they all battle to provide consumers with the best tech to manage their money and the best customer service to accompany it.

While open banking is not destroying traditional banking, it is instead giving customers more power to switch providers and pick products, meaning banks are facing stiffer competition.

Competition comes from:

  • Other banks, who now aggregate multip