With the first day of the PSD2 directive being operational, the banking and financial sector in the EU will face disruption.

“In my opinion, we underestimate the long term effects of liberating the banking information. It will be a real earthquake for eCommerce and retail sectors. but not only” comments Krzysztof Pulkiewicz, CEO at banqUp.

The main goal behind the PSD2 directive is to find a balance between the security and convenience of digital payments. The directive had both to secure the payment process and the data engaged in the payment process.

The risk of fraud is the number one concern for 44% of financial industry professionals. And that’s not a surprise considering fact that the total loses from online payment frauds will amass to the staggering $48 billion by 2023.

“Every fraud hurts the economy and can come with dramatic consequences. People and companies who got cheated lose money. Banks and financial institutions suffer from image and opinion loses. In the end, frauds are used to finance the illicit activities that further hurt the society” comments Pulkiewicz.

Supervising the transactions

The major change delivered by the PSD2 directive is the Request to Pay mechanism. It significantly decreases the number of step required to make an online payment.

“In fact, it is quite an intuitive model. It imposes building the new layer of communication between all the subjects involved in the payment systems - the API powered open banking system” comments banqUP expert.

Consumers are most likely to see the first effect in the increased request for authenticating the payments. With the new directive, more transactions need to be confirmed by double-step authentication. But that’s only a tip of an iceberg.

“Getting access to the customer’s bank account via API is going to change the online commerce industry in the way unseen before” comments Anna Ciesielska, co-founder of banqUP. “The seller, be that an e-commerce an online insurance provider, or any other company, will be able to initiate the payments, so the problem of payment gridlocks will be reduced for good. No more forgotten bill or invoice to pay”

Brave New World of banking

As with every new regulation, at first, the changes will be seen after some time. Banks will see the biggest benefits but also challenges coming from the new law.

“Providing customers with a multi-account app that allows them to manage their assets in all banks and financial institutions they use will be the best way to gain competitive advantage and reach new users” comments Pulkiewicz. “On the other hand, all banks get this tool, so the competition will be harsh.”

The next step is building the services built by the Third Party Provider (TPP). “There are countless possibilities limited only by our imagination. With all the data available via API it is possible to deliver a more comprehensible image of the customer, tailor the products or built something unseen ever before” says Pulkiewicz.

The non-bank banking

Both banks and TPPs will augment current offer with new products. A good example comes from the Hungarian market, where banks start to augment their services by selling train tickets or automating the parking payments.
But with the new law and proper partner basically any company will be able to augment the offer with the banking services, even if significantly reduced. “Why couldn’t a retail chain offer short term loans with little to no interest rate?” asks Pulkiewicz.

Also, the banking infrastructure can be used to perform other services, including user authentication or delivering a comprehensive view of a particular user.

In many cases, there is no need to provide banking services. Sometimes getting only slight information regarding the user can be enough to deliver more convenient services. Authenticating with banking services can be sufficient to perform some state administration-related duties. Access to the customer’s situation in multiple banks can reduce the number of toxic debts and generally improve the financial condition. Finally, there can be a comprehensive analytics tool delivered that tailor the banking offer for the needs of a customer as well as giving him or her a deep insight into the financial condition.

“Europe is at the threshold of the new era of banking and financial services, even if we, as the consumers, don’t feel the changes yet. But beneath the calm surface of the stable and venerable international banking system there is a turmoil. And it is the matter of few months to witness the explosion of new products and offer” says Pulkiewicz. “I can’t wait!”