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

  • JJ Hornblass
  • November 8, 2016
  • 0

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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JJ started the first iteration of Bank Innovation back in 2007, and has been working on it ever since. He also serves as President & Chief Executive Officer of Royal Media, Bank Innovation’s parent. He founded Royal in 1995 and oversees all aspects of the New York-based diversified media company. Prior to forming Royal, JJ was on the editorial staff of American Banker, the daily newspaper, and worked as an editor of a business magazine in Hong Kong. As a reporter and editor, he has won journalism awards from the National Press Foundation, Newsletter & Electronic Publishers Foundation, and the Reader’s Digest Foundation. He has a BS in Economics from Yeshiva University and a Master’s from the Columbia University Graduate School of Journalism. He was also a Fellow at the University of Wisconsin-Madison Graduate School of Banking. He lives in New York City with his wife, two daughters, and son. He counts among his accomplishments one New York City Marathon, two New York City Triathlons and the 2010 Father’s Day 5K, the first race he ever ran with his daughters. He can be reached at or 212-564-8972.

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