Bank Regulation

Is PSD2 A Boon For Banks?  

January 2018 may be a ways off, but PSD2 is going to change the way banks share customer information and APIs. And while some industry observers think it’s the worst thing that ever happened to banks, Token CEO Steve Kirsch says that it’s a blessing in disguise for all of them. He maintains that open networks will be a source of revenue for those banks savvy enough to move beyond mere compliance.

Boon, according to Token CEO Steve Kirsch, who told PYMNTS’ Karen Webster that he's optimistic about the directive for banks' payments compliance, which is, of course, shorthand for the draft revision to the Payment Services Directive. And while revisions seem to imply a step-by-step process of tweaking the way things are done — in this case, payments across the European Union — PSD2 has the potential to change the industry, both in the EU and beyond.

The overarching aim of PSD2 is to encourage an expansion of who actually participates in payments in the first place, letting third parties come in, embracing payment information service providers (PISPs) and also account information service providers (AISPs) by, in part, opening up bank APIs and letting all those "other" acronyms gain access to customer data.

“This is the best thing to happen to banks,” said Kirsch, “since the internet.” PSD2’s implementation deadline comes at the beginning of 2018. Of course, banks must comply, added Kirsch, but they also have the ability to choose to make API access easy for third parties or difficult (presenting codes and data, Kirsch said, in ways that might be hard to use effectively).

“Banks are taking this seriously,” said Kirsch, “and they are starting their efforts now and planning to leverage open banking rather than just treat PSD2 as a ‘compliance checkbox.’” Instead, he said, firms have been active in satisfying PSD2 in a manner that is “progressive ... and good for the banking industry as a whole.”

By forcing banks to adopt and adapt to an open API system, said Kirsch, the system moves beyond the “stone age in which it has existed,” with limited functionality and third parties, such as PayPal or Visa, as payments intermediaries. Now, payments can move toward being a more direct process, said Kirsch, and industry observers’ fears that prices on transactions would be headed to zero will prove to be mistaken. Instead, market rates will prevail (even if market rates shrink), while more revenues will be freed up because they will not be going to third parties.

In addition, said Kirsch, the more direct interaction between banks and merchants means that banks have more control over transactions.

He also noted that technology and access to APIs open the door for firms such as Token “to make lemonade out of lemons.” Though the perception of PSD2 may be that banks are being regulated out of a part of their business, what Token is doing is “helping [firms] to monetize PSD2 ... by allowing banks to get a better price for their API,” with different pricing structures for different customers, including the PISPs mentioned above.

For the banks, said Kirsch, and for the PISPs, the opportunity is there to service merchants directly, with the benefit of “getting a bigger slice of the revenue pie. ”

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