Banks are using pending data-sharing rules in Europe to rethink how proprietary their systems should be, but they likely have little choice in the matter.
The new Payment Services Directive, or PSD2, goes into effect in January. The update is designed to accommodate mobile transactions, faster payment processing, virtual currency and third party payment apps. As part of the rules, banks must standardize application programming interfaces for balance checks, statements and payments — and provide these APIs to third parties.
Beyond leaning toward bank preferences to use APIs over screen scraping to share data, the PSD2 rules are considered to be friendly toward financial technology startups. Much of the technology spurred by the pending PSD2 rules has moved in this direction, as vendors use artificial intelligence to expand alternative payment engines or expedited processing to boost mobile payment apps and wallets.
"It's a given that fintechs will take a reasonable share of banks' business, and it's kind of a necessity for banks to look to partner with them," said Sathish N. Senior, senior vice president of product management at SunTec.
SunTec is focused on the bank side of the PSD2 equation, releasing a "open banking" suite this week to make it easier for banks to partner with financial technology companies.
The open banking program builds on SunTec's Xelerate-branded technology platform, adding preset configurations and definitions that can fit different models from app developers and other startups. Xelerate's core functions are price governance, accounts receivable, billing, API performance monitoring and data-driven decisioning on revenue models.
SunTec is betting on PSD2 creating bank-driven marketplaces, in which payments such as P-to-P transfers or other financial services become the center of an array of related services. The value of the bank is thus redefined as a venue to manage, monitor and monetize customer data.
"There is a larger set of value that can be correlated to a transaction, and banks can use these collaborations to see the larger purpose of a single transaction," Senior said."The whole concept of PSD2 is opening up customer information, and that creates larger revenues for the right set of partners."
Banks are increasingly open to working with fintechs, in part because there is a limit to what banks can do on their own, said Michael Moeser, director of payments for Javelin Strategy & Research.
"The sharing of data is something banks are reluctant to do," he said, noting court cases and PSD2 are forcing banks' hands. "The recognition of banks being constrained by regulations that fintechs are not beholden to can create an opportunity for a large bank to partner with a small company."
It's not a new argument that banks can benefit from PSD2 by ditching the old view that third-party digital payments companies are a threat. But since PSD2 is a customer-focused regulation, any benefit for a technology company, a bank or a collaborative service requires buy-in from consumers.
"If the consumer wishes to work with a startup payment provider, the consumer's bank is no longer allowed to prevent the payment provider from accessing the consumer's information and funds," said Brad Margol, a principal at AZ Payments Group. "Banks can no longer monopolize payment services, even among [their] own banking customers."
PSD2 is a European regulation, though similar rules are expected elsewhere. The CFPB is considering its own rules, causing a preemptive move among U.S. banks to begin partnering with third party technology providers.
"If banks take the initiative and open up, maybe they can do it on their own terms," Margol said. "It is unlikely that the Atlantic will be enough of a barrier to isolate these changes very long."