PSD2 and Open Banking – bringing opportunities for start-ups

In an Insight article published on 28 September 2017, the FCA explores the opportunities that the Payment Services Directive 2 (PSD2) and Open Banking may bring for start-ups.

PSD2 is changing the rules for the banking industry. From January 2018, UK banks will have to provide details of customer transactions to any authorised organisation that a customer approves to have its details, and make payments on the instructions of an organisation (approved by a customer).

In addition, Open Banking will help make PSD2 a reality as banks will have the capabilities to securely share customer data and transact with the customer’s permission. The FCA expects that these changes will provide opportunities for start-ups, however query whether start-ups will seize the opportunity.

The FCA predicts that the start-ups will come from finding a way to make the data about customer activity into a useful by-product for targeting advertising. Although people are likely to be more sensitive about sharing their banking data than their search history and regulators will have to be sure that any business model “does no harm” to consumers before it launches; PSD2, along with the future data protection regime, creates a new regulatory landscape for the potential start-ups to navigate.

The FCA thinks that hundreds of entrepreneurs will give it a go. Those that do will need to find a service that is so attractive to users that they will consent to targeted advertising to avoid any usage fees; and find a way to grow quickly as useful data needs volume. Banks will also have spotted the opportunity, bringing fierce competition to the table.