Come 2018, banking is poised to go through transformational changes with PSD2 driven open banking.
PSD2 provides the directive wherein account information service, payment initiation service and accounting service are identified as distinct services. While PSD2 is a broad guideline for streamlining payments across EU, regulators have the freedom to define the directive within their region.
In line with the new directives, Competition and Markets Authority (CMA) a Government body in UK is implementing open banking policy by mandating banks to open up banking services such as account information service, payment initiation service to third party service providers who have the necessary authorization from the end customer.
Open Banking Implementation Entity (OBIE) has released two versions of open bank APIs specifications this year to achieve information share in a standardized form across banks and service providers. CMA has brought together top banks in UK to implement the open bank APIs and open them up to the market as per the PSD2 directive. PSD2 is acting as a catalyst for open banking initiatives.
Now that the picture has emerged about how UK is approaching the PSD2 directive, let us see how banks and service providers must approach the implementation and utilization of open APIs.
Banks, in a major shift in the market landscape, will now deliver solutions to the end customer via 3rd party service providers, through their technology interfaces. This shift will transform their view of technology from “an aid to my business” to a “core of my business”.
Traditionally banks have monolithic core systems covering most banking operations surrounded by a few department specific systems such as loans, treasury management systems. With open banking, Banks will need to strategize their enterprise automation to have tighter integration and move beyond transaction management to insight generating systems. In the long run PSD2 driven open Banking initiatives will be the catalyst for banking technological innovation.
Banks will now compete to open up innovative products for third-party providers to include in their end customer offerings. All such products will be rolled out through the technology platform for consumption by service providers. So, banks will need to improve their agility to roll out feature upgrades. Stability of the banking technology platform will be both critical and bare essential for survival in this scenario. Banks will also have to prepare their systems to scale exponentially to accommodate any surge and high range of fluctuation in volume of requests from the service providers.