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PSD2 obliges ASPSPs including banks, e-wallets, prepaid cards and other companies that offer payment accounts to provide at least one channel for secure communication with third party providers (TPP). Even neobanks or e-money institutions, including their agents, have to provide such channels with sandbox environments published 6 months before going live (RTS, clause 21). The recent Open Banking Report created by Salt Edge shows that not all the financial institutions have managed to meet all the regulatory requirements.
Financial institutions can choose to provide an API and/or a Modified Customer Interface (MCI). In this article we’ll explore the basic requirements for a PSD2 compliant channel, implementation challenges, major benefits and opportunities for financial institutions.
In case of MCI, the main implementation challenges are:
More information on MCI interface is provided in this article.
API, on the other hand, is easier to implement with a guarantee that all the PSD2 requirements are fully met. The API implementation allows the financial institution to have a holistic and transparent overview on the TPPs’ activities at all times. Financial institutions can even provide a revoke consent functionality to their customers to ensure that the data is being shared only with those parties customers really need. Implementing the APIs allow the financial institution to start the digital transformation journey and promote other services offered by the ASPSP via API as well, creating new monetisation streams.
ASPSPs have 3 options to proceed with the PSD2 implementation, which depends on the size of the ASPSP, desired time to market and the overall strategy of the financial institution:
PSD2 opens a new era where each bank and eWallet can provide any service to third parties via an API channel. Depending on the financial institution’s strategy and core products, a range of premium APIs can be opened up to TPPs. We can already see such examples on the market, where banks provide identity checks, mortgage calculator, wealth management APIs, ordering branded cards via API, automated FX market orders and real time rates, corporate payouts, instant fund transfers confirmations, and many more. I do expect that many other APIs like instant loans, account opening will follow to rise. By providing custom and truly valuable products on the markets, allowing TPPs to distribute such offerings to their end-users, ensuring longevity and prosperity of banks in the new era of banking-as-a-service.
Even the basic PSD2 API implementation ensures customers loyalty for banks because the end-customer will remain a user of the bank while using other applications and services. Banks can also get inspired from such TPPs through fruitful collaboration and improve their own services and offerings.
Hence, building a good, reliable PSD2 channel for TPPs can help financial institutions in retaining customers and acquiring new distribution channels (via TPPs) for their own products, increasing the number of transactions that customers are doing on a day-by-day basis.
If you want to learn more about PSD2 challenges and opportunities, subscribe for Salt Edge free webinar here.