In the modern world, open banking is changing the way people use banking services, with the EU’s Payment Services Directive (PSD2) Europe prides itself on being the cradle of the open banking revolution.

FREMONT, CA: It has been four years since PSD2 was in force and has reshaped the European payment sector. The ongoing review of PSD2 brings an opportunity to assess the current status of open banking in Europe as well as the impact of the directive on the sector. Allowing third-party providers to open banks enables secure interoperability in the banking industry to access payment transactions and other data from banks and other service providers. Open banking allows the networking of payment accounts and data across financial institutions through the use of application programming interfaces. Without PSD2, a regulatory initiative that aims to increase competition and innovation in payment services, the arrival of open banking in Europe would not be possible. The PSD2 directive was adopted in 2015 and EU member states had until January 2018 to transpose it into national law. More than four years since its inception, there is no doubt that PSD2 has had a significant impact on the European payments industry, as well as the entire banking sector. Yet, there are perceptions that open banking in Europe has not succeeded as much as it was expected, and that the payments market has not yet fully utilised the opportunities brought by the opening up of bank-held account data. Currently, the review of PSD2 brings an opportunity to analyse the current state of open banking in Europe and the actual impacts of the directive, as well as to identify what the barriers are to a more open financial system.

Enabled by PSD2, open banks in Europe have already shown a positive impact on competition in payment services and the banking sector generally, enhanced consumer protection and supported the creation of new payment solutions. Yet, regulatory hurdles are still faced by TPPs such as fintech, e.commerce businesses, and other start-up companies when entering the payment markets. Another opportunity to foster innovation in financial services and to create new solutions beyond the area of payments is a regulatory requirement to open up not only payment account data but also information concerning other financial products such as wealth management services or consumer lending.