The Berlin Group hosted its third conference where technology and finance leaders in Europe reflected on PSD2 and discussed the upcoming Payments Services Directive 3 as the move towards Open Finance.
Below is a summary of our key takeaways from the event:
PSD3 – “Expect evolution, not revolution”: There won’t be any big change of scope in the upcoming Payments Services Directive 3, though there will be a review of the risks, oversight and supervision. There aren’t any significant changes in terms of Open Banking either, apart from addressing obstacles and improving baseline API functionality. Overall, it’s not “the next big thing”, but there will be improvements, and it’s still scheduled for June 28th.
Berlin Group Developments: Even though Berlin Group standards were designed for PSD2 and Open Banking, the speakers demonstrated how they have evolved at pace with industry and consumer needs. On the payments side, the standards had already been expanded to support various payment systems such as giroAPI – a German initiative to create value-added API services – and EPC SPAA. The Berlin Group is now eager to support new payment schemes that are still under development, such as the European Digital Identity Wallet and the Digital Euro.
Subsequently, they showcased an expanded catalogue of API standards, including both those delivered and those under development, which unlocked several new use cases and services. Some of the more notable new APIs included BNPL, Digital Contracts, Smart Contracts, Account Opening, Dynamic Recurring Payments and Trade Finance.
No standard API: Regulators seem to be following the path of PSD2 by providing the guidelines but not the technical standard.
Passing the ball: On one side, banks are saying they need a more precise framework. After all, compared to UK Open Banking, Berlin Group defines fewer endpoints explicitly and leaves the rest up to the implementing institution.
On the other hand, regulators state that reaching a consensus across all EU states is more complicated than it seems, which is also why there are so few agreed endpoints.
Car manufacturers don’t sell cars, apparently. It’s the new mindset. Car manufacturers sell mobility, not cars. By this logic, banks do not sell current accounts, instead they sell transactions, payments, and money management.
Digital euro and government control. The digital euro is planned to be a purely electronic currency. With electronic money comes the undeniable risk of being able to “program” it to control how people use it. On this front, regulators are explicitly opposing such programmable money and are taking steps to ensure that money remains agnostic and independent.
Low API Traffic in the EU. Some financial institutions find it mildly frustrating that, after investing money in Open Banking compliance, API traffic remains quite low. In fact, some have found that some TPPs don’t use APIs, and instead still use screen scraping. The reasons behind this are not certain, but it may involve high barriers in obtaining the TPP certification to access Open Banking APIs as well as difficulty actually finding and accessing the API.
GDPR as a barrier: Despite being the protector of EU personal data, GDPR is considered an obstacle for Open Finance; they are somewhat incompatible. While one tries to minimise data-sharing, the other tries to facilitate it. Thus, institutions have difficulty navigating these two regulations and ensuring they are compliant with both. The issue is not new, but the time is right for addressing the situation to ensure a straightforward data-sharing process that won’t compromise institutions and lead to hesitation.
After 7 years of testing Open APIs in the banking sector, it makes sense to expand the practice to include other areas of finance. Customer expectations move quickly and, as they get used to the availability of banking data, they will start subconsciously comparing it with other services such as savings, investments and insurance.
PSD3 may not be a revolution, and we may already know many of the revisions that have been planned, but the expansion to Open Finance will hopefully be a robust foundation for more revolutionary innovations in financial services.
After June 28th, keep an eye out for an Open Bank Project summary of the directive outlining the key points of interest to financial institutions.