Learning Library

← Back to Library

Open Banking Revolution Under PSD2

Key Points

  • The EU’s Employment Services Directive mandates that banks expose their account‑service interfaces to trusted third parties, forcing a major technology overhaul over the next two to five years.
  • PSD2 expands payment‑service eligibility beyond banks, allowing telecoms, media firms, and other non‑financial entities to initiate transactions while imposing safeguards on money handling.
  • This regulatory shift fuels a new open‑banking ecosystem where fintechs and incumbents can combine account data, balances, and transaction history into innovative, integrated services.
  • Parallel UK “Access to Account” standards echo PSD2’s goals, promoting competition by granting authorized providers secure, standardized access to customers’ bank accounts.

Full Transcript

# Open Banking Revolution Under PSD2 **Source:** [https://www.youtube.com/watch?v=actiLf_DNtg](https://www.youtube.com/watch?v=actiLf_DNtg) **Duration:** 00:11:52 ## Summary - The EU’s Employment Services Directive mandates that banks expose their account‑service interfaces to trusted third parties, forcing a major technology overhaul over the next two to five years. - PSD2 expands payment‑service eligibility beyond banks, allowing telecoms, media firms, and other non‑financial entities to initiate transactions while imposing safeguards on money handling. - This regulatory shift fuels a new open‑banking ecosystem where fintechs and incumbents can combine account data, balances, and transaction history into innovative, integrated services. - Parallel UK “Access to Account” standards echo PSD2’s goals, promoting competition by granting authorized providers secure, standardized access to customers’ bank accounts. ## Sections - [00:00:00](https://www.youtube.com/watch?v=actiLf_DNtg&t=0s) **PSD2 Unlocks Open Banking** - The EU’s Payment Services Directive (PSD2) requires banks to share account data with trusted third‑party providers, enabling non‑bank firms to offer payment and financial services and prompting a significant technological transformation in the industry over the next few years. ## Full Transcript
0:03there's a regulation called the 0:05Employment Services directive - which is 0:07kind of dull sounding like all 0:08regulation but it does in fact force all 0:11of the banks to open up their account 0:13services to third parties or trusted 0:15third parties very importantly so that 0:18they other people other than the banks 0:20can provide services to their customers 0:22both commercial customers and consumers 0:24so that's going to change everything and 0:26that means they have to provide that 0:28information they can they could be some 0:30of those trusted third parties 0:31themselves and enhance the services 0:32they're already providing but it's a 0:34very very intense piece of technology 0:37change it's going to happen over the 0:38next two five years PSD to that the 0:45second payment services directive from 0:47the European Union looks at the modern 0:50world and they've said you don't have to 0:51be a bank you don't have to be a 0:52financial institution you could be a 0:54telecoms company you could be a firm of 0:57analyst you could be a newspaper you 0:59could be anything that involves that 1:01transaction there's no reason we have to 1:03give you special status and call your 1:04bank or a fine institution there are 1:06going to be safeguards if you're taking 1:08people's money obviously because that 1:09could be yeah the Wizards robbery it 1:12invented what the future of banking and 1:15financial services might look like and 1:17then it's the job of the industry and 1:19newcomers and entrepreneurs and guys 1:22with ideas to come along and populate 1:24that that future which is a one issue 1:27for the incumbent banks is another issue 1:29for the FinTech startups they've got 1:31lots of new ideas and somehow that will 1:35all come together and a new ecosystem 1:38will emerge it won't just be here's your 1:50account this is the amount of money you 1:52have or don't have and here's a list of 1:54transactions all of that could be 1:55integrated in clever aways pac-2 doesn't 2:06specifically a couple of things and the 2:10one that is good cause most confusion to 2:13create everybody is going to have access 2:16to everyone else's bank account and this 2:18is not just happening in Europe in the 2:20UK in a post European UK there is the 2:22thing called the UK open banking 2:23standards which kind of fits in with the 2:25PSB idea 2:26it's called access to accounts xxs to a 2:28these have people who breathe you a live 2:30Alice this is horrible and clumsy 2:32abbreviation so access to accounts means 2:36that payment service in initiators or 2:39payment service providers can be payment 2:41initiating service providers or one of 2:43the key things about the PSD to 2:45phraseology and legal terms is trusted 2:47third party I certainly would trust my 2:49bank for instance because I trust them 2:51with my money and they look and it could 2:54be anybody this huge competition so 2:56suddenly the competition which is the 2:57point of PSD to because that's the point 3:00of the European Union you see where that 3:02suddenly comes together never got a 3:04proper fair fight between everybody 3:08you 3:16we're standing right in the middle of 3:18the the main financial district in 3:20numbers or weather all very close 3:21together they're already told to each 3:23other very much and they don't really 3:24communicate except through 3:26intermediaries like exchanges and 3:27clearinghouses and that's what's really 3:29about to change 3:30[Music] 3:35it's all about everybody playing in the 3:38same ecosystem so nobody's our 3:40specialists anymore which is kind of 3:41good but it means you have to go and 3:43find the specialist in that particular 3:45bit so there's lots of gaps in 3:46everybody's knowledge and and that you 3:48know play nicely together my idea is 3:51going to be very difficult for some 3:52people to do but it's going to be 3:54essential for them to work with others 3:55to recognize the skills of others we 3:57know what you're good at know what other 3:59people are good at and find the skills 4:01you need to get to where it is you want 4:03to be which is presumably a healthy and 4:05thriving business of course it's going 4:07to be standards of the banking industry 4:08and the IT are that also we need an API 4:11it's almost as though it's the only way 4:13anybody could think of doing it so yes 4:16it's going to be in several api's but 4:18hopefully not 8,000 traditionally the 4:32banks were they're very expensive and 4:33very old IT systems are in a kind of 4:35maintenance mode was at the time so 4:37they've now got an opportunity to 4:39leapfrog that thanks to the clever 4:41developers and and some cases some of 4:44their own there are guys within 4:45institutions and what a few women as 4:47well I've been sure you who are really 4:50working on and trying to persuade their 4:52institutions to adopt and change their 4:55mindset or mode so the whole thing has 4:57become a developer mindset now everybody 4:59wants to developing 5:04survival is one opportunity but it's 5:07also new ways of doing things will allow 5:09banks to put themselves back in with 5:12that that value chain that they thought 5:14they were getting this intermediate on 5:15people have quite a surprising fact even 5:18after the crash and the anti-capitalist 5:21riots around the world in all the g7 5:23protests and so forth 5:24people still really trust their banks 5:27more or less when it comes to the money 5:30though it might be Bank a is very good 5:32at small businesses whereas the bank 5:34next door might be particularly good at 5:37car loans don't you know auto financing 5:39that's other thing you could bundle 5:41those together you could bond it with a 5:42thin tech is really good at doing 5:44something on a mobile phone for instance 5:46the only way that is going to work is 5:48with api's because the people have to 5:52have some sort of mechanism for 5:54accessing the money at the end of the 5:56day and it wasn't developers it was a 5:59guy in the banking side of the bank so 6:00what if we did this and then they went 6:03got their friends who said and he said 6:05well we can just download that we can do 6:06whatever we need to it's the magic of 6:08all of those things working together at 6:10ideas firing off different types of 6:12people so the role of the developer and 6:14in the traditional sense changes as well 6:16because it's making people's ideas and 6:19business ideas come to life there are 6:32security issues and then as you open it 6:34wider that is going to be one of the big 6:35issues but on the whole financial 6:37institutions banks have been pretty good 6:39at looking after the money 6:42I need to be able to talk to people's 6:47bank accounts and this lets me do that 6:49the law says you've gotta let these 6:51people have access to that account 6:53there's all sorts of caveats of that 6:55there are issues around risk and 6:57liability and we we joke about various 7:00hackers sitting in basements across 7:03countries that won't name and who are 7:06writing their own api's because that's 7:09what hackers do so there are issues 7:11around security and risk and that's what 7:14banks get anyway from their issues on 7:16mobile banking applications as you know 7:18seeing some of the stories of ground 7:19that and on the whole banks are pretty 7:21good at looking out of the money so I 7:23think that's a good of a red herring 7:26that side of things 7:27but it is the access to accounts that 7:30changes things 7:31the only other bit of BSD terms is 7:33specifically mentioned is the robust 7:35security on the photogate we don't know 7:37yet collect I think early in 2017 the 7:41the technical standards for what robust 7:43looks like get published but it is 7:46obviously going to be a given 7:48[Music] 7:57consumers will see that the benefits 7:59first because they'll be they'll be 8:00getting a whole new raft of services 8:03give you a much better idea of where all 8:04your finances are what make more 8:06predictions and another level of control 8:09over your your own information and you 8:12can share that with who you need to 8:13share that with having the ability to 8:14use an API to initiate a transaction and 8:18just take the money from your account 8:19sound scarier than actually it it takes 8:22out the risk of then having your credit 8:24card details stolen from their databases 8:25because they don't have the details 8:27anymore I think the interesting thing 8:34about piously - actually is most people 8:37dismiss it as a fairly typical piece of 8:40European law making and how dull is that 8:43when you start reading it and then one 8:45or two people write people when read 8:47this bit read this bit about access to 8:49accounts and all of I don't know how 8:52many pages expose thousands of pages of 8:54European law is translated into all 8:56European languages but there is one 8:58phrase in there as access to accounts 9:00and that is what's going to change 9:04everything 9:05and because everybody has access to 9:07accounts that means everybody's going to 9:08have to work together to make sure that 9:10those frictions 9:11that exists between ways of doing 9:13business are removed whatever happens 9:15the fax machines it's a whole technology 9:18that came and went in my lifetime that's 9:20going to happen with other things like 9:22payment technologies maybe credit cards 9:24wedding system for much longer because 9:26of the way that the rails of payment we 9:30have in the UK we have the faster 9:32payment system so it's instant payments 9:35bank account to account and in the US 9:38and Canada Australia and nearly all of 9:41Europe by the end of 2017 are going to 9:43have instant payment which is a way that 9:46the technology is changed it but on top 9:49of that you then put PSD to so now 9:51everybody can join in and use those 9:53rails so that's that's where it's going 9:56to make a difference in one borough 9:58things that come together 9:59and caused that change because of the 10:13volume of financial transactions that go 10:16through here in terms of foreign 10:17exchange and even euro transactions that 10:20go through London that there's a huge 10:22gap of expertise and it's probably one 10:24of the leading places in the world for 10:26the so-called FinTech innovator 10:27companies there's a massive number of 10:29very small very bright groups of people 10:32doing very innovative things which the 10:36bigger banks and the more sensible banks 10:38are starting to realize they can 10:39actually bring into their ecosystem and 10:42help their customers and help themselves 10:43to take to take their role back in in 10:46the financial transaction so it's the 10:49exciting time 10:49[Music] 10:55the thing about PS d2 is it's not 10:57happening in isolation you have the 10:59technology happening and the cultural 11:01shifts because of the way we use and 11:03interact with our personal technology 11:05particularly and that works into 11:06business as well quantity run Treasury 11:08for large corporates are the kind of 11:11people that already own iPads and 11:12whatever so they expect the same 11:15services they get with their own 11:16personal bank accounts to be working in 11:18their corporate banking accounts and 11:19they expect to be able to do that from 11:21anywhere anytime 11:22PSB - changes everything about the way 11:25payments are done and the way banking is 11:27going to be done in the future which is 11:30not bad for a little dull European law 11:32is it I don't think that's what the 11:35lawyers meant but they think they're 11:38going to change much more than they 11:39thought that we're going to change by 11:40just adding that competition and putting 11:43it with a mix of the technology and the 11:44cultural changes that are going along as 11:45well it's going to change very rapidly 11:50Oh