Buried half way down some Legislation from the European Union is a bank shattering piece of legislation that will change the banking landscape in the European Union. The legislation, dubbed PSD2, for Revised Payment Service Directive, opens the door to Fintechs looking to take on banks in Europe. It aims to hand data ownership back to the customers and open up banks via technology to aggregators and payment initiators. These two new players are classified as AISPs, or Account Information Service Providers, and PISPs, which, as I said initiate payments on behalf of the users. The tech that will allow AISPs and PISPs to do this is of course APIs. Banks will be forced to create open APIs for third-party providers to connect to them.
The major goals of the ECB are
- to contribute to a more integrated and efficient European payments market;
- to further level the playing field for payment service providers by including new players;
- to make payments safer and more secure; and
- to enhance protection for European consumers and businesses.
That all seems nice, but the details of how they move into this is freaking cool. If you’re interested like I was, you can go read the regulatory technical standards. At a high level, what’s going to happen is third parties and banks will offer:
- the issuance and use of strong customer authentication solutions, allowing for authorisation to be dynamically linked to the specific amount and payee;
- the offering of transaction and device monitoring to identify unusual payment patterns;
- the provision of a standardised and reliable access interface to payment accounts (i.e. an application programming interface, API) which makes it possible to identify third-party payment service providers in a secure way and secures all related communication between all parties involved. The aim is to reach a market agreement on one technical specification so that all systems across Europe could ultimately be based on one or a few technical API standards.
This legislation is going to precipitate the launch of lots of new startups in the three above categories. Consumer security is going to get much better, and hopefully, transactions are going to get much faster with better transparency for customers. Actually, I hope this is already happening. Might be time to finally do that Euro trip…