Banking APIs, PSD2 and the Future of Banks

The revised Payment Services Directive (PSD2) is set to change the role of banks in the financial services space. PSD2 aims to increase competition, innovation, and transparency in the EU banking sector, by opening up banking APIs to various trusted third-party services. PSD2 mandates banks and payment service providers to facilitate access to user account data and payment initiation via API, meaning that banks may no longer be the sole providers of online banking services, and instead begin acting as back-end utilities for other financial and non-financial service providers.


What to expect from banks
Banking APIs can be divided into five main categories: client data, account data, cards, payments, and credit.

Clients
Client data can act as an alternative to the various online KYC services we see today. Banking clients would be able to “login” using their personal bank details, providing the relevant third-party service with verified personal information, thereby fulfilling any KYC requirements. This allows financial and non-financial online services to piggyback on banks KYC processes, while allowing banks to monetize their KYC process outside of their own services.

Accounts
Account information may include bank account numbers, balances, transactions, and similar information. Accounts APIs can be used in various applications such as wealth management, robo-advising, accounting, and applications for tracking personal and/or business expenditure.

Cards
APIs for credit and debit cards would allow third-party services to save user's bank details without PCI compliance implications. Cards payments are of course available through various payment providers, banking APIs may however increase the competitiveness in this space. Card issuance may also become available via API, meaning that bank and credit cards can easily be issued through non-banking institutions.

Payments
Payments APIs mainly revolve around initiating bank transfers and retrieving the statuses of transfers. End-users could for instance sign up for subscription based services with regular bank transfers, or pay bills directly from third-party portals.

Credit
Credit APIs include loans and repayments. Non-banking institutions could potentially offer credit to their customers seamlessly with banks operating in the background. Furthermore, credit consolidation and aggregation could become more sophisticated with access to more data.

What lies ahead?
Banks may either choose to embrace PSD2 and commence building an ecosystem with their banking products in the center, while other players may take a more passive approach and comply with the regulations in the most basic manner.

We expect banks with higher digital ambitions to deploy more extended APIs in order retain customer interactions and broaden access to their services in the highly competitive banking environment which is to come. Meanwhile, banks with lower digital ambitions may comply with the minimum legal API requirements, thereby holding on to their current customer base and having a lesser chance of creating a broader ecosystem.

Most banking APIs are expected to roll out in the start of 2018. Banks such as BBVA have already published API documentation and started building their developer ecosystem. Other institutions such as Nordea have published a roadmap and overview of services to come.

We work with leading institutions in the era of Open Banking and look forward to building out the ecosystem of available services both for the market to utilize.

This post originally appeared on Crowd Valley Blog.