PSD2 is just the starting point: Pictet and Finologee unlock the potential of APIs
The Second Payment Services Directive – better known as PSD2 – has been a hot topic since it came into effect within the EU in January 2018, and banks have been keeping a close eye on developments. Businesses have until September 2019 to ensure they are compliant.
The new rules in PSD2 have far-reaching impacts on banks, payment service providers and online merchants, particularly in relation to new requirements surrounding customer authentication and the introduction of open banking. At its heart, PSD2 aims to increase competition, innovation and transparency across the European payments market while increasing consumers’ protection when they are making digital payments and transactions.
Once each member state has transposed the directive into national legislation, banks and financial institutions will be faced not only with significant technical and compliance challenges, but also consequential change-management challenges as the regulation impacts several aspects of a bank’s operations: IT infrastructure, strategy, culture, skillset and regulatory knowledge.
Until now, many barriers have prevented third-party providers (TPPs) from offering their solutions on a large scale in different member states. Under PSD2, banks and financial institutions are required to remove these barriers and open up payment accounts to TPPs, who are now able to initiate payments on behalf of custodians as PISPs (Payment Initiation Service Providers), retrieve account information as AISPs (Account Information Service Providers) and/or collect availability of funds status as CBPIIs (Card Based Payment Instrument Issuers) through standardised Application Programming Interfaces (API).
As a result, more competition is expected with new players entering markets and offering cheaper payment solutions to a larger consumer base throughout Europe. Furthermore, while TPPs must follow the same rules as the traditional payment service providers (registration, licensing and supervision by the competent authorities), banks will have to fulfil new reporting obligations about their technical performance.
In this context, the partnership marks a natural next step for Pictet as Finologee shares not only extensive experience in payment services but also its network with top level advisory firms and IT integrators to provide optimal support when developing Pictet’s PSD2 API, thereby ensuring total alignment with the Regulatory Technical Standards (RTS).
However, while Finologee supports all the main European Standards such as UK Open Banking, STET and the Berlin Group, Pictet has decided to follow the Berlin Group Guidelines to develop its PSD2 API, which will include, on top of the developer’s portal, all the mandatory features required by PSD2.
Through Finologee’s API platform (Trusted FinTech Platform), which simplifies connectivity between financial services professionals and institutional players on the one hand and a variety of FinTech solution providers on the other, it is possible to source, verify and aggregate third-party FinTech components in full compliance with financial industry regulation under a double PSF Support Licence and under the supervision of the Commission de Surveillance du Secteur Financier (CSSF).
The directive is a huge trigger for institutions to turn the regulatory requirements into a technical or business opportunity. First, by opening access to TPPs, and doing so through an API approach unlocks massive potential for private banks to optimise their existing IT systems, thereby enabling them to keep pace with new regulation impacts in a cost-efficient way. Second, building new services embedding external APIs or consuming white-label APIs from TPPs will empower these financial institutions to focus on business development by reallocating internal resources while enhancing their own tools and products to provide superior customer experience.
PSD2 creates tremendous new opportunities for banks that choose to go beyond the minimum requirements. Banks that take a proactive approach by forging new relationships within the third-party ecosystem and partnering with FinTech companies will have the possibility to create innovative services while optimising their time to market.
Pictet believes in anticipating the opportunities beyond PSD2 and leveraging Pictet’s heritage and expertise with FinTech’s innovation capabilities is a key investment for the future of the Group.