In the last weeks I had plenty of discussions with FinTech entrepreneurs about the impact of PSD2. So far nothing different than in the months before but I am getting the feeling that more and more entrepreneurs are eagerly waiting for PSD2 APIs in order to make use of the payment initiation feature. These players want to become a Third Party Provider or more specifically a Payment Initiation Service Provider (PISP) under the new PSD2 regulation.
I believe that the rise of new PISPs could be an actual game changer for open banking and financial service industry in general. Services that are reading out bank account transactions and balances, which are called Account Information Service Provider (AISP) under PSD2, have been around for many years: early movers were offering Personal Finance Management (PFM) tools and newer players also doing more specific problem solving than just aggregation. These players had ways of getting the data, and even though the technology like screen scraping was not great, it still worked (but slow).
Welcome to the world of Open Banking! As of Saturday PSD2 is finally alive and what has been discussed and shaped for many many months is now finally reality in most EU countries (but not all since a few have delayed its implementation). And of course “is now reality” means only in the regulative perspective but not in a technical way.
The long-term impact of PSD2 will foster open banking and enables us as end consumers to use financial data whenever we wish to and not when our bank allows us. But what I was wondering about in the last days is the short term impact of PSD2. Access to bank accounts and our financial data has been there already been there before PSD2 – either through account aggregators like figo or through other direct accesses. Thus we will not see many new services in the next following weeks and months and also not after banks will finally release their APIs. These APIs are not a game changer. What PSD2 will change is that the companies who want to access our payment accounts are required to have a license to do so. Consequently, the short term result of PSD2 will be fewer new services as access gets harder and the quality & quantity of accessible financial data remains the same.
The FinTech-famous date 13th January 2018 is finally approaching and less than one week ago. What has felt like ages – probably because it did – is now about to change our lives: PSD2. Banks are obliged to open up their infrastructure to Third Party Providers (TPP), and these TPPs have to finally meet certain criteria in order to access current accounts.
Even though PSD2 is only one week away it will take another few years to see the actual impact of PSD2. The date of 13th January is only important to banks, TPPs and other stakeholders but not the customer. John Doe will bank the same way on 13th January as he did on the days before and will probably not even know what PSD2 stands for or the impact will be for him.
It is the very end of 2017 and as usual for this time of the year there are not many news as most people are recharging for the new year. 2018 will be (another) big year for FinTech as the industry is becoming more mature mostly due to new regulation being finally implemented: most importantly PSD2. So what development will we see in Open Banking in 2018?
This year we have seen already a few banks in Europe releasing their APIs (finally!) and due to the upcoming PSD2 regulation we are in the happy situation to see a lot more of them in 2018. The banks that have gained the biggest attention for releasing their APIs were in point of view BBVA (Spain), Deutsche Bank (Germany), Nordea (Finland, Denmark, Norway and Sweden), ABN Amro (Netherlands) and Hellenic Bank (Cyprus).
End of the year is the time for reflection and thinking. For me finally time to picking up this blog again and wonder why I stopped earlier?!
As I am too late for a 2017 write-up, I want to focus on the biggest story in the last week before Christmas: PayPal investing in Berlin FinTech Startup Raisin (Details).
The investment itself is already big news as PayPal is not known to do many startup investments in Europe. Additionally, the comment that PayPal will potentially also offer Raisin’s services to its own customers could be a game changer. Which FinTech startup would not be interested to offer their own services to such a big and most importantly digitally educated audience? This cooperation will give Raisin definitely a massive push in the tough competition with Deposit Solutions.
But the bigger picture is the development of a potential fourth wave in FinTech.
The last couple of years there was hardly any professional day for me without a discussion about PSD2 and Open Banking. And when I analyse all these discussions, the biggest time was invested in talks about the pressure on banks to open up. Of course this is a crucial part of PSD2 and is / will be very challenging for many players.
However, as PSD2 implementation is only a few months – and not years anymore – away, TPPs (third party provider; companies accessing bank accounts) that do not have any license yet (mostly FinTech startups) should start thinking about their strategy around PSD2. I have understood that most of them “ignored” this as these young companies had other more urgent issues. Nevertheless, if a TPP has started XS2A operation after January 2016, then they will require to have license by April 2018. And April 2018 is – even for startups – that not far away anymore.
Since all of us have started to use the word FinTech, the industry has seen a few changes already. In total, we can see three waves of FinTech development (see also my Slideshare of 2016 about this development):
Wave #1: FinTech startups attack (2009 – 2014): Mainly due to changed regulation, better technology and cheaper costs to found a startup.
Wave #2: Banks fight back (2014 – 2015): Banks recognised the threat of FinTech startups and decided to compete with FinTech startups on their level (“FinTech killer”)
In November the second FinTech Week will be happening in Hamburg/Germany. Last year’s edition was a great success, combining all different FinTech events of the second half of the year into one week. Resulting in a concentrated week of discussions, networking and learning. Last year the figo team had organised a Bankathon within FinTech Week 2016 and this year I will be personally supporting one event day which will focus on FinTech from the other side of the world: we call it #FinAsia.
Last week PwC in Germany published a survey where the majority answered they would grant a third party access to their bank account. Exactly 2/3 said they would consider doing so and the remaining 33% stated that there is no scenario where they would do so.
Among the people who are considering granting access their willingness depends on account protection (38%), data safety and privacy (34%), added value from third party (21%), who is the third party (19%), price advantages (17%) or convenience (11%). Willingness to share credentials with third party providers is highly depending on the age. Taking only the respondents below the age of 30 in consideration, the willingness to use third party providers increases from 67% to 86%.
The European Union is turning Europe into a playing field for FinTech entrepreneurs. In the post PSD2 world any accredited third party provider will be able to access the data of payment accounts whenever the owner of the account has granted the right to do so. Banking is in many ways an old fashioned industry, but the complete neglect of doing anything else with financial data that storing was surprising – to say the least. Other industries were growing vital thanks to exploiting such data sources, however, banks and other incumbents decided to not only to forego the opportunity to make use of them but also to limit access for others. Which is somehow proving, that banks know about the true value of financial data but at the same time declaring that oneself is not able to harness it, and thus, no one should. More entry barriers and protection were welcomed to make it even more complicated for outside players to enter the industry. The classical story of protectionism.