“PSD2 in Plain English” – What Banking Startups Should Know

“PSD2 in Plain English” is a book that deciphers both legal gobbledegook and technology jargon. The book carries the accreditation of a ‘Plain English Book Mark’. This accreditation means the book’s clarity has been independently assessed by the Plain English Campaign. Written by independent financial consultant Paul Rohan, it unravels the complexity of the second EU Payments Services Directive (“PSD2”).

PSD2 & Changes In EU Banking

PSD2 will lead to big changes in EU banking because it is prompting banks to enter the “API Economy”. API is short for Application Programming Interface. Computer programs are often designed with a person in mind. However, the output from a program can also be used by another computer program. This type of program is an API, which doesn’t try to offer a pleasing experience for a person. An API is “machine-readable” rather than “human-readable”. APIs are the software equivalent of wall-sockets for electricity and they seem likely to revolutionise how software and services are delivered. The software from one service provider can plug into the API of another provider, collaboratively mashing services and data together to produce innovative and new customer experiences. The service providers that loosely connect together through these APIs are starting to innovate faster. They are adding more customers than service providers who don’t have this software architecture.

So how are EU Regulators prompting banks into the API Economy? Information from a customer’s payment account is very useful. It is a vital ingredient for developing financial products and services. For many years, only the bank providing the account had this information. If more providers get this information, innovation and competition will increase. PSD2 obliges EU banks to open this payment account information for all providers. PSD2 lets many service providers initiate payments and access data from an account. The customer needs to understand and agree to this.

Implications For Financial Services

PSD2 will have far reaching implications of financial services in the EU. There are many new service possibilities using the PSD2 APIs. Shoppers will be able to buy online without using a Debit Card or Credit Card. Retailers will welcome the new competition for the traditional card schemes, whose fees can be high for the smaller transactions. The Personal Financial Management software that many people use to manage their money will analyse live data from a customer’s bank account. Families and businesses wishing to shop around for longer term loans can conveniently share their income and spending patterns with all potential lenders. Small businesses can allow their accountancy software to automatically reconcile with their bank accounts, removing a tedious and time consuming task. Auditors can focus in on the larger or more unusual transactions amongst the mountain of financial data, cutting the cost and time of verifying financial reporting for a business.

Why The Startup Community Should Care

Why is this interesting for the startup community? This new services ecosystem emerging around bank data may provide business opportunities. Startups could also find more efficient and convenient ways of managing their own money. Perhaps more importantly, it gives another signal to new ventures that the services economy is becoming highly digital and highly connected. PSD2 means that even old, monolithic and cumbersome banks are becoming more flexible, agile and connected. The “Born on the High Street” businesses are now starting to adopt the techniques of the “Born in the Internet”. Startups that want to maximise their opportunities to grow will need to focus both on their own service offering and the other complementary services where they could share data and processes.

PSD2 in Plain English is available as paperback and eBook on Amazon and most online bookstores globally.

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