What will Open Banking and PSD2 really mean for me?
January 17, 2018
On Saturday 13th January European wide changes in the rules about payments came into effect. These changes have been years in the making and they are designed to open things up in such a way that it will make payments more innovative, secure and bring more competition to the market. These changes are referred to as the second Payments Services Directive (PSD2) upon which the industry is moving to “open banking”. Since the weekend there has been much commentary about the development, some of which has been ill-informed comments about how retailers will see all your banking data and how access to your account could be “opened up” in an insecure way. This is simply not true – on the contrary, Open Banking and PSD2 are about giving you complete control over what data you share with third parties.
If you’ve ever connected an app to your Facebook or Twitter account, you’ll be familiar with how Open Banking will work. You are redirected to Facebook, so that you can authenticate directly – no credentials are given to the app. You review the permissions the app wants – for example, to see your email address and your list of friends. You authorise the access, and are redirected back to the app. Facebook provide the app with a short-lived token that can be used to access only the data you permitted. This authentication and authorisation is what PSD2 and Open Banking bring to the financial area – with your bank rather than Facebook.
For most of us, however, nothing is really going to immediately change. Most banks are not ready and there are numerous technical standards yet to be agreed which will dictate how this new ecosystem will work. So the passing of the European directive into national legislation is a building block, in a build that has a very long way to go.
Despite this tedious and slow progress, we ought to remain positive for the long term. The industry has now irrevocably changed and the concept of using a third party app to access and make payments from a bank account is firmly established. The door is by no means fully open but it is no longer closed. Both personal and business customers may now look forward to having new ways to open accounts, access data and transactions and initiate payments.
For example, businesses could sell online and accept payment by asking the buyer to push funds from their bank account rather than entering their card number. This will help reduce fraud, lower the cost, reduce repudiation of transactions and speed up the transfer of funds. The buyer is directed to their bank account from where the payment is made to the retailer. Businesses will also be able to link their accounting systems to their accounts which will enable them to both access their transactional data with ease and to automatically initiate payments – without having to use the bank supplied application.
Simple things like adding a link to a Facebook profile, tweet or message will allow personal customers to collect money from friends for sponsorship, dinners or gifts – getting paid in real time from any bank account. Charities could advertise QR codes on the tube or at bus stops, which people can scan, then be directed to their bank and make a donation.
Such examples are the tip of the iceberg – there are hundreds of businesses that will now be able to innovate and bring to life a new era in payments.
When the mobile app stores went live, it took time for the apps that we all use today to appear. So too, with open banking it will take time for the solutions to appear, but at least the store is now open. At fire.com we are planning to take full advantage of these changes and we aim to help our customers both business and personal, manage their payments more easily, safely and cheaper than today. We now have thousands of customers using our digital accounts to make bank transfers, save on foreign exchange fees, pay with the fire.com MasterCard® debit card and get instant alerts to their phones as transactions occur on their accounts. There’s no going back now, as another building block has been laid.
Colm Lyon, CEO fire.com