PSD2 Could End Up Being a Boon to — Yikes! — Banks

canstockphoto1287595TEL AVIV — A much-maligned European Union banking regulation may have some unexpected, positive consequences.

The Second Payment Services Directive, known as PSD2, will require EU banks to open the EU payment market to companies offering consumer or business-oriented payment services based on the access to information about the payment account – the so called “payment initiation services providers” and “account information services providers.” This is longhand for requiring banks to make their their systems and data available to developers via application programming interfaces, or APIs.

Banks need to implement PSD2 by January 2018.

Banks have complained that PSD2 will give fintech startups access to their customers, despite the fact that some banks have spent more than 100 years developing their franchise.

But there might be a silver lining in PSD2. Lloyds Banking Group is considering aggregating data from other financial services providers to create a banking portal of sorts. Lloyds would use the very APIs all banks are required to make available to build this portal.

The suggestion of this aggregation service was made by Alon Zadka, senior innovation lead, at Lloyds Banking Group, during the recent Bank Innovation Israel here.

It should be stressed that this is no more than an idea at this point. Lloyds is preoccupied now with rebuilding its “account journey,” meaning all facets of the bank’s account opening and maintenance process, procedures and technology. Zadka said the account journey innovation project, being conducted by Lloyds’s Digital Strategy Team, will take several more months, and is a major effort for the bank.

Since its launch a couple of years ago, the Digital Strategy Team has been involved in completing more than 50 proof of concept, pilots and experiments, Zadka said. That’s a notable number for a bank the size of Lloyds, which has a market capitalization of about $50 billion and assets of around $1 trillion.

It is interesting to consider that PSD2 might not be the “boogie man” regulation some bankers feared. Most bankers have expected PSD2 to be a burden to EU banks, but banks might banks just as greatly as fintech startups, it seems.

Of course, this is not the first time a regulator mandate has turned out to be a benefit, rather than an unadulterated burden, to financial institutions. For example, the Consumer Financial Protection Bureau in the U.S. has allowed consumers to submit complaints about financial institutions. Those complaints, in turn, are published digitally. Some FIs have used that complaint data in various applications and analysis. While that might not negate the public tar-and-feathering of a particular complaint, it is an unforeseen benefit to banks.

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