Only a year left to the moment when the revised Payment Services Directive comes into full force. Starting from January 13, 2018, third parties wanting to enter the financial market will get tools and regulations enabling them to use valuable data stored in banks and other institutions in this sector. Most of these third parties will be fintech startups with their innovative product and services.
The idea behind the PSD2 is to open the client information that is held close by banks, and, as a result, to open the well established financial sector to small, but more agile players. Thanks to the Directive, Fintech startups – as well as other third parties – will be armed with banking API, which gives access to a wealth of data, including client’s personal information or account balance. (It’s not decided yet, which data sets will be mandatory open and free.)
How Could This Data Be Used?
Fintech startups can use this data in many creative ways to offer enhanced user experiences (eg. better designed mobile banking apps for your existing accounts) or completely new products and services such as innovative payment methods, personal finance managers, instant user authentication or credit scoring, online lending, currency exchange and so on.
Not only third parties will be able to leverage client information not accessible before, but they will also do it perfectly legally, since the PSD2 treats them on par with existing financial institutions – provided that third parties will fulfill all the Directive’s requirements and, in cases when client’s money is involved in their operations (TPP – third party payment service providers), they will be licensed and controlled by regulators.
Smooth Start For Startups
This means that fintech startups will have an easier start on the very crowded and competitive financial market. Surely, they can’t compare with the big players in terms of resources, especially funding, but since they are tiny organizations with often brilliant ideas, they should be more agile and successful in finding new solutions.
Using banking API, fintech startups can mine and extract trustworthy data to develop and build a whole new world of experiences for clients of banks. No special workarounds – sometimes violating bank policies or terms and conditions – will be necessary to get client data.
Is this a win win?
This is a real game-changer for fintech startups, which will have the opportunity to focus on their core innovations, not the mechanisms for retrieving crucial client information from closed sources such as banking systems.
With lots of useful data available through banking API for free – or even in paid model when it comes to data sets not explicitly considered as open by the PSD2 – fintech startups will be able to compete with the established, traditional players on almost equal terms. Or they could cooperate instead, if their products or services prove to be mutually useful to banks. Either way, the PSD2 forces banking sector to open itself to third parties – and this is something fintech startups will definitely benefit from.