On 8 October 2015, the European Parliament adopted the European Commission proposal to create safer and more innovative European payments through the revised Directive on Payment Services (PSD2). In a series of laws recently adopted by the EU in order to provide for modern, efficient and cheap payment services and to enhance protection for European consumers and businesses, PSD2 will allow for innovative disruptors to enter the financial industry.
Aside from the wide scope of the directive, PSD2 capitalises on the accessibility of APIs (application programming interface) which are digital gateways to a company’s data and services. And this topic was discussed at length during the conference, as banks were anxious to learn whether this change is a threat to them. And they should be, because theoretically, banks could lose contact with their existing customers if they cannot keep up.
PSD2 requires banks to build open APIs that offer third parties access to transaction data – with the customer’s permission of course. Although this controlled access to payment accounts by third parties may sound very disruptive and futuristic, there are already some examples from the payments industry that demonstrate this potential. PayPal opened up its services to the developer community in 2009, allowing developers to leverage PayPal assets for innovative services. The provision of the PayPal payment API has already led to some interesting services, including Venmo and Expensify. Paypal is also known to be in talks with Google, Facebook and large Internet and mobile players to allow their services to be charged to or from Paypal.
In many ways, an API is a product in itself, targeted at developers, and a true API economy is on the rise. Many technology companies, including Fintech ones, opt for an “API first” strategy and offer their services through this digital channel. It is then up to the market to decide how the service will be used or integrated.
Many Fintech start-ups are itching to start using these mandatory APIs to create cross-bank financial apps for clients and much more. Germany has already seen a tentative launch of this development with KontoPilot by Deutsche Post, which creates an overview of your current accounts and credit cards across all banks. PSD2 provides an obvious consumer advantage, however it also means that the existing banks may end up spending years and billions of pounds implementing and testing these standards.
According to William Gibson, “The future is already here – it’s just not evenly distributed.”
As an innovative provider of an open digital banking hub, OCEAN plays a pioneering role to level the digital playing field by offering banks the opportunity to pursue new business models, in order to push their differentiation strategies in this segment. The basic idea is openness via the targeted use of APIs toward third-party applications for seamless offerings for the consumer.
OCEAN provides a digital banking delivery platform that lets banks upgrade their digital services quickly and flexibly, and the use of an established and comprehensive API-layer will help banks quickly transform their digital business to stay future-ready.
The role of banks is about to change, and banks are a platform in the Making. After all, tomorrow’s bank is no longer about creating the best product, but about offering the most attractive platform, and evolving a bank into a platform opens the door to new opportunities.