As the European Union (EU) moves forward with new regulations that have broad implications for the payments sector, regulators in the region say the market is beginning the “slow burn” of a payments revolution, according to news from Reuters this week.
The spark of that burn is PSD2, the Payments Services Directive 2, which takes effect this weekend. The regulation is wide-ranging but, on a broader level, aims to boost FinTech and payments innovation by facilitating data sharing between financial institutions (FIs) and other financial services providers.
“The development of the market is likely to be a slow burn,” Karina McTeague, director of Retail Banking at the U.K.’s Financial Conduct Authority, told the publication. “We, like everyone in this industry, don’t know exactly which direction it will go.”
“PSD2 is a revolutionary piece of regulation that is likely to signal the end of the high street bank in the medium to long term,” stated DLA Piper Head of Financial Services Regulation Michael McKee.
Reuters said the Financial Conduct Authority has received 40 license applications so far for PSD2 services in the U.K. Up to a dozen could be in place by Saturday, when PSD2 takes effect.
The embrace of data sharing and open banking is propelled by regulations in the U.K. and EU, but in the U.S., other market forces have encouraged a similar trend. Reports noted that FinTechs in the U.S. argue Dodd-Frank rules allow them to use financial data from their customers, and while banks have been slow to facilitate the sharing of the data they store, gradually the industry has supported open banking as a means to boost competition and retain customers.
“It will be a challenge for all existing banks and payments firms, given their responsibilities to protect information, to properly and promptly handle requests for access to customer data from new open banking portals,” Reed Smith regulation lawyer Tim Dolan told Reuters of the open banking shift.