What’s the difference between Open Banking and PSD2? These two topics are hot topics in the finance and banking sectors.
PSD2 is the legislation that will be applied across the EU and its Member States by 13 January 2018. It is an update from the original directive (PSD) adopted in 2007. The PSD created a single market for payments and the foundation for a Single Euro Payments Area (SEPA). Many new entrants, especially in the tech and fintech area, are outside the scope of the PSD and, therefore, not regulated by the EU. The PSD2 aims to improve security and fraud prevention, but at the same time encourage innovation and competition. In other words, PSD2 paves the way for a Digital Single Market.
Through Open Banking, consumers will be allowed to view all of their bank accounts, payments accounts and bills in one place, such as an Application Programming Interface (API), through third-party providers.
Account holders (the consumer) will have to give prior consent for this to take place or to allow third parties to initiate payments on behalf of customers. Open Banking aims to give consumers more control over their data while also supporting an emerging market of new third party products and services, such as tailored price comparison websites.
In simpler terms, PSD2 is the regulation that allows projects such as Open Banking to take place. Having that regulation will ensure the market is fair and competitive, but also safe and secure.
The CMA requirement provides a case study for understanding the difference between PSD2 and Open Banking.
For more information about PSD2 check the websites of the European Payments Council, FCA and Payments UK.
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