Why PSD2 is a huge opportunity for FinTech startups
The PSD2 Directive challenges the finance market as we know it. Banks soon will be obligated to share their data in order to provide more competitive services to their customers. This is seen as a huge opportunity for startups, but how FinTech-friendly is PSD2?
PSD2 gives a significant boost to the FinTech and open banking market. It brings necessary foundations to the Open Banking ecosystem. In this structure, access to customer payment account data and the payment infrastructure of banks is open to any institution that fits the definition of the Directive (but only upon customers’ consent and authorization). By September, 2019, all companies within the EU will be obligated to comply with the new regulations. If there ever was a perfect time to launch a FinTech open banking startup, it’s now.
TTPs – New players on the market
The PSD2 Directive clearly defines and regulates the work of companies now known as Third Party Providers. TPPs will be able to provide two types of services:
- services based on information about customers’ bank accounts (AIS)
- services providing payments by being connected to a banking account (PIS)
What does this mean for open banking FinTech startups? Whether it is a new application for the everyday consumer or a specific solution for the banks’ Open API, your next digital product could work as a TTP.
Higher profitability in innovation
What makes FinTechs stand out on the market is the fact that they’re able to identify and fill the gap between the current offering of traditional financial institutions and actual customer needs. FinTechs offer an agile approach and an efficient digital process, which allows them to swiftly introduce their offerings to the market. Integrating with banks’ API is now the fastest way to implement financial digital products and start gaining revenue.
Before PSD2, the partnership between banks and FinTech solutions was usually rough. Today, banks have something that FinTechs do not have: large volumes of customers. But what they do have is a fresh take on customer journeys in banking. FinTechs’ mindset is focused on solving a narrow set of client problems. Thanks to PSD2, it’ll be easier for FinTechs to access the information they need to deliver services to their customers. However, those customers still use banks, and they’re often not that keen to trust new service providers. the rich, well-defined structure of a bank can also be beneficial when it comes to providing complex services. Open banking and access to banks’ API improves cooperation and provide guidelines on how to conduct the partnership. In the end, both sides win: FinTechs working as TPPs can bring new digital products to banks, and banks can then sell them to their customers. It’s an ecosystem, not a fighting ring.
Enablers, not disruptors
Although PSD2 offers great opportunities to open banking and FinTech, it’s important to remember it comes with a set of rules. The main compliance-related challenge that TPPs have to tackle is defining their own accountability. PSD2 does not require a contractual relationship between banks and Third Party Providers. Banks in Member States are working on standardization of this process.
Nonetheless, open banking FinTechs acting as TPPs have to guarantee customer data security. Winning the trust of the everyday consumer is a key factor for FinTechs’ success. Managing the transferred payment and personal data in a safe and secure way should be a priority for every emerging TPP.
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