We are all familiar with the twin financial service revolutions of Open Banking and PSD2. Beacons of change, they promise to drive innovation and make it easier for customers, banks and other third-party service providers to share data, thereby opening up a whole world of possibility many never even thought possible. But what is the difference between Open Banking and PSD2? The terms often seem to be used interchangeably, but are they?
A recent article by Marcus Hughes in Fintech Finance does a great job of drawing clear boundary lines between these two initiatives. In short, the differences largely lie in scope, standards, with compliance also providing a little distinction.
In terms of scope, the difference between Open Banking and PSD2 is very clear. The adoption of Open Banking is only mandatory for the nine largest providers of current account son the U.K. (although challenger banks have also happily jumped on the bandwagon). PSD2, however, applies to all payment account providers in the union, regardless of their size.
In terms of standards, Open Banking functions under a single, pre-defined Application Programming Interface (API) that’s been implemented by the nine largest banks. PSD2 on the other hand has no set parameters, with the EU leaving the technical details open to the market to decide. While there are pros and cons to each approach, it will be interesting to see what the ramifications of the more flexible approach will be on standardization and access going forward.
As for compliance, the deadline for Open Banking happened in mid-January, with most banks meeting the required timeline. The runway for PSD2 is somewhat more flexible. While the EU’s Regulatory Technical Standards (RTS) have been published, EU Account Servicing Payment Service Providers (ASPSPs) payment institutions still have an 18-month transition period to comply.