Open Banking & PSD2

Ankit Raj
4 min readDec 28, 2019

PSD2 is the most common word we are hearing in Open Banking space. It’s considered as the backbone of Open Banking.

What is PSD2 ?

This is an extension or up-gradation of the Payment Services Directive of from EU. The theme is to provide better protection to consumers in terms of their data and privacy.

This is done by “creating an API economy available to the third party by different participating banks”. Exposing the API will create lots of opportunities as well as push fintech leaders to get better in their customer services who all are owning part or all of a consumer journey.

In India, few years back there was a up-gradation in the telecom industry. Users got the choice to change the telecom provider while retaining the same old number if they are not satisfied with the current offerings. All these lead to better services to customers from the telecom provider. Open Banking is a bit similar to it. Consumers can switch to services from one bank to another bank with just one simple click-based out of the services provided by the bank. It not only provides better switching service but also opens the door of other opportunities too.

Fig: Gardens by the bay :Unsplash

Check more on use cases here. Let’s get back on PSD2.

Is PSD2 only a Europe-Union thing?

No, whilst PSD2 in Europe and Open Banking in the UK is paving the way for new business models and standards across the globe enforcing the start of a digital transformation of all banking and financial services. Other countries gradually started embracing the futurism of open banking.

Small and big companies both are keeping a close eye on how PSD2 is shaping in the short term as we as long term. Few of the pointers regarding PSD2 are:

  1. A new approach to the UX of finance: Rise of Neo Bank like Brex, Monzo, Revolut made a clear indication that exiting bank infrastructure lacks in User Experience. Seamless UX by these companies has gained lots of traction from customers. Few banks in Singapore have done an amazing job in UX compare to other banks too. All these are well poised to grow in the PSD2 environment.
  2. Rise of Open Finance: I did customer surveys across South East Asia and India with more than 100+ people (mostly business owners) and found they believe more in openness and transparency in the finance. Although they are not open to make public about all of their finances. On the other hand, they believe, openness creates trust and processes things faster too. PSD2 solves this issue. It explicitly empowers account holders with the authority to share data.
  3. Standardization of accessing data: Different companies have different formats of balance sheets. This is another barrier to open finance. Making all balance sheets in common format and then exposing it via well-defined API is difficult. Few companies are trying to build a sandbox kind of environment where data will be processed in standard format for PSD2 for participating banks.
  4. Save money and time: There are many things that can be automated and will save lots of time for companies as well as users’ authors-action process. eg: Banks can form a consortium of the KYC process. Once any customer got verified on one bank portal, he/she isn’t supposed to go through the same process for another bank. This will not only save lots of time for banks and users, but it can also be integrated easily with insurance, healthcare, and other verticals. I am sure there might be few companies/banks working on this. This whole new approach gives an instant push to this authorization process of open banking.
  5. It’s all about a better experience. PSD2 doesn’t limit to save time, money and giving fancy dashboard. It is poised to give the ultimate whole user journey from start to end. It protects consumers as well as promotes innovation around online and mobile payments. Think of buying mutual funds/shares from one vendor. If you are not satisfied with one vendor, you can change your vendor in just one click. No need to worry about settlement and rework for the KYC procedure.
fig: PSD2 usage in some industries.

PSD2 and open banking opens doors to decentralization of data!!

Thanks!!, for reading. Suggestions are most welcome.


Ankit Raj

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Ankit Raj

Blockchain Engineer | Distributed system | Ex- Red Hat | Ethereum foundation grantee