PSD2 (Revised Payment Service Directive) is an EU legislation that enables bank customers, both consumers and businesses, to use 3rd party providers to manage their finances. The aim is to better protect consumers when they pay online, promote the development and use of innovative online and mobile payments such as through open banking, and make cross-border European payment services safer.
What does that mean? The banks’ monopoly on customer data disappears, and you can start using Facebook or Amazon, for example to pay your bills, make transfers, check balances, all while still having your money safely in your current bank account.
Under the directive, new players are encouraged to enter the payments market, forcing banks to give them access to their customers’ accounts through open APIs, allowing them to build financial services on top of the bank’s data and infrastructure. By using the banks’ APIs, providers can enter the market without the heavy compliance and infrastructure which banks are required to maintain.
Although the use of APIs is not something new, their usage has been growing significantly and they are now being adopted as key enablers for business services and digital products. This opening of account APIs is a big step towards ‘Open Banking’ which can offer a tremendous potential for banks to keep pace with innovation and create new revenue streams.
Almost 80% of a customer’s interactions with his bank are payment-related, and payments often act as a gateway to other banking services. PSD2 is accelerating the digital disruption that is reshaping the financial services industry, as banks that have traditionally focused on their legacy systems will now need to increase their functionality and customer service to keep up with the digital transformation or lose many of the customer interactions, if they don’t create equally attractive solutions. Banks will no longer only be competing against banks, but against everyone who is offering financial services.
Core banking systems are the oldest in banking technology and is one of the biggest issues for banks in embracing Open Banking. An example is Nordea in the Nordics who invested 1 billion euros in its core banking overhaul, and the transition is expected to take about 5 years.
IT costs are expected to increase significantly due to new security requirements and the opening of APIs both in terms of IT infrastructure, development and testing of the new applications. A very flexible IT architecture will be required from the bank to have its internal systems work with other parties’ apps. Also, if a bug is released, the bank is exposed to legal risk by the FinTechs and end-users who come into contact with it. This in turn brings regulatory and reputational risk.
Adopting DevOps and Continuous Testing
Reliable open banking solutions, superior quality, end-user protection and innovation all rely on an effective and efficient Continuous Testing strategy including performance, security and mobile testing. Banks will need to test their APIs under real-world conditions, with real data, real-world characteristics and real performance requirements. Testing will need to happen in a Continuous Delivery model, where the developers changes are tested against every developer check-in.
DevOps moves away from traditional development, test and IT operations functions and towards a more collaborative operating model, and also brings greater alignment with business goals, incorporating business representation into the delivery team, which is ideal for Open Banking channels.
DevOps could hold the key to many financial organisations in their efforts to differentiate offerings, and stay on top of the competition.
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