When it comes to PSD2 and Open Banking, the European Union is like a test lab for the rest of the world.
Countries like China, India and Russia keep a keen eye on the Europeans, as they consider applying laws and regulations similar to PSD2. However, in comparison to the EU, the services available in these markets are already way ahead. They have previously integrated everyday payments into social networks and online banks, providing the possibility to transfer money from an account, card, or phone number. Large providers have become, in essence, payment aggregators, and their platforms are integrated into governmental and municipal services. They enable opening an account and applying for a loan or a mortgage without visiting a single bank, simply online or on a mobile app.
Most European banks don’t provide their customers with services that could match what’s available in, for example, China – and we’re not even talking about the simplest of scenarios, like payment services interacting with those of the state. Nonetheless, other countries can’t just sit back and watch what the EU is up to. Although they have developed a channel of digital networks and, quite possibly, the best customer experience, the market is mostly owned by a small number of dominating banks and processors.
The EU, in turn, is a club of 28 (still including the UK) countries with individual markets, mentalities and cultures, all of which impact their payment landscape. Thus, PSD2 is not reinventing a single payments industry; all EU members need to choose their take on general concepts, such as Open Banking and instant payments. Hence this is a great opportunity for learning, as some new models and approaches evidently function better than others, with the Swedish mobile payment system Swish as an example.
Currently, the obvious leaders in the digitization of payments and financial services are the Nordics. This is due to a culture of innovation and positive perceptions of new technologies. Now, the EU is further boosting this mindset by creating rules for the game, and letting the players come.
This approach won’t work everywhere. In a lot of other regions, the market can be small, it can be heavily reliant on cash, or people might just prefer the market players that are simply aiming for minimum mandatory compliance with no or very little active innovation. In such countries, no formal regulatory push will help the introduction of new products and services – it must come from the market itself. This is why the results of each individual country should be studied in order to form best practices for others to follow.
Now is the right time to consider a general re-engineering and optimization of the entire payments market based on standardized rules and APIs. This can only be completed through industry collaboration; otherwise, banks will do what is convenient to them. As current financial institutions are the ones that will provide the APIs, we need to avoid a situation in which the API systems are controlled only by big banks. The EU is attempting to create unified rules and information registers to ensure a level playing field for everyone.
Other countries have time to learn from the introduction of open APIs in the EU and consider all positive and negative aspects. The EU might make a mistake or two in the initial production phase; the rest of the world can avoid them by drawing their own conclusions from European experiences.
If you would like to learn more about PSD2 and innovation, take a look at the previous blog. To learn more about how Tieto can help you with business development, please contact me to set up an appointment.
Edgars has a background in strategic product development at Tieto and has a long experience in change management and innovative solutions implementation in the financial sector. He has been in IT management, IT strategy development and legacy solutions renewal in various banks for more than 20 years. He has hands-on experience in Lean process improvements, business renewal and management consultancy. Currently, Edgars is involved in instant payment products development and assists financial institutions to adopt their business models for real time economy.