PSD2’s open banking also opens up business payments
From forex to rental accommodation, personal identification to loyalty schemes, many customer experiences are starting to be transformed by the effects of Europe’s Second Payment Services Directive (PSD2) just months after it was introduced.
Low-cost travel currency provision, securing a new rental flat, buying goods online and viewing your complete financial position across multiple bank accounts have all become easier thanks to third parties taking advantage of the access the regulation gives them to customer bank details to provide new services. Innovation is alive and kicking and motivation to succeed is high.
For banks, initially concerned that PSD2 would allow others to come between them and their customers, the prize comes in keeping themselves at the center of their customers’ digital banking experience. This will allow them to continue to collect valuable transaction data that will help them cross-sell and upsell their own products and services.
For merchants and service providers, open banking promises to remove some of the hassle — known as friction — of registering new customers, recognizing existing customers and completing purchases. It could also make it easier to make targeted offers and build loyalty.
Meanwhile, fintechs are hoping that the new services they can provide, such as bank-account aggregation, will capture the public’s imagination, helping them create new businesses.
The sheer variety and success of those already operating in the payments area proves open banking’s value.
Online property portals are developing open banking services that help both landlords and tenants kick off a new tenancy faster and at a lower cost. Traditionally, the first rental payment is often made by debit card, incurring high processing fees. The alternative is to set up a Bacs payment, which can involve visiting a bank branch and filling in forms. The whole process can take up to 10 days to complete.
For landlords and tenants alike, this can be too long and there’s no guarantee that any payment will ultimately go through. Meanwhile, the landlord may have lost alternative tenants. Savvy online property marketplaces will begin using open banking to take immediate payment directly from the renter’s bank accounts by the end of the year.
This approach not only circumvents the high fees but also cuts the amount of time it takes to make that first payment from days to seconds. Down the line, we expect these portals to incorporate identity and credit checks as well as recurring monthly payments into their solutions, removing further areas of friction.
In travel money and investments, there’s also plenty of activity. Caxton, for example, aims to remove the pain points associated with registering for and using a preloaded foreign-exchange card. These include high fees, delays in clearing the first payment from the customer’s bank account and the need to log in to both bank and forex provider. Like the property portals, forex providers can take immediate payment directly from bank accounts, cutting the cost and closing the time gap from registration to live accounts.
Online investment services are also looking to offer similar services to streamline account setup and moving funds.
In all these areas, open banking is cutting the hassle and increasing automation, helping to bring down costs and improve the customer experience.
The scope of these services can and will be broadened out as open banking payment services take off and the simple use cases are proven. Expect to see recurring and bulk-payment facilities that will take the strain out of volume transactions, as well as services that offer lending on the back of payments.