PSD2 - where are the innovations?

This is a summary of a more comprehensive article in which we discuss the reasons behind the differences between the European continent versus the UK in terms of PSD2 / Open Banking adjustment, and the opportunities for banks and TPPs. Read the full story here.

Source: DNB

PSD2 – where are the innovations?

Eppo Heemstra
Connective Payments

The European Union had high hopes for the introduction of the revised Payment Services Directive, PSD2. If all banks were to make their customers’ payment data available to Third Party Providers (TPPs), the market for financial products and applications would open up further. In short, more competition, more innovation, more efficiency and thus more benefits for European citizens and businesses.
However, three years after the introduction, the number of innovations arising from PSD2 is still limited.


Things are not going by storm

All European banks have complied with the legal obligation to build the necessary infrastructure. So much for the good news. But with the expected innovations things are not going by storm. In fact, the numbers of PSD2 transactions are hardly kept anywhere.

Certainly there are some innovations. New payment institutions such as Yolt (money management) and Flow (budgeting) have emerged. But we can safely say that the expectations of the Commission have not yet been met.

The exception: the UK

Only one member state chose to implement the new EU legislation in a way that drove real financial innovations, responding to the Commission’s aspirations. Ironically, that country was the UK. The Competition and Markets Authority (CMA) created a central Open Banking Implementation Entity (OBIE) early on, sponsored by the nine largest banks. The OBIE determines the technical standards and documentation, provides information, encourages use and solves disputes. This had an effect: against the 173 PSD2 licenses issued in the UK, there were only 17 in the Netherlands, end of 2020.

Pains and traps

Unlike the UK, most mainland European banks have so far regarded PSD2 as a threat, a compliance issue rather than a commercial opportunity. The spectre has long been that PSD2 could potentially roll out the red carpet for Fintechs and Big Tech companies that could parasitise the banking infrastructure with the help of a PSD2 license. Hence the lack of central coordination. Furthermore, the technical implementations differ per bank. New entrants have to develop, test, implement and maintain various technical solutions for a multitude of banks. Again, unlike the UK, where the banks agreed on detailed technical standards for the PSD2 transactions from the start.

And finally European consumers seem to keep a wait and see approach. Research shows they are reluctant to share their payment details with third parties, especially non-banks.


Despite all these pains and traps, there are plenty of opportunities to benefit from the PSD2 infrastructure, for both TPPs and banks.

Examples of improved services are budgeting and faster credit scoring for loans, mortgages, rental contracts, private lease, etc. Thanks to this infrastructure, the transaction costs of online payments for web shops can drop dramatically, especially in countries where credit cards and Paypal are the norm.

A PSD2 transaction followed by an Instant Payment could turn out to be a very strong combination, challenging the hegemony of costly payment methods.

Read the full article here.

Picture of Eppo Heemstra

Eppo Heemstra

Partner Connective Payments
Partner, PSD2 lead & Compliance
+31 620 352 007

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