How PSD2 and Open Banking impact the payment landscape: Essentials

Open banking (or PSD2 in Europe) is a legal framework introduced by the European Union and the UK. It forces financial institutions to open their customers' account information, historical and current data to a third party (if the customer allows it). As a result, companies that take advantage of PSD2 and Open banking impact (such as account information services) have the power to bring substantial benefits to the end consumers.

Efficiency

Every innovation in the payment market essentially boils down to one question.

How do we move money more efficiently?

B2B transactions are often complicated by incompatible systems that delay them and add additional fees. [Embracing open banking](https://www.pymnts.com/api/2020/us-bank-b2b-open-banking/ "") can enable free and seamless data sharing between banks and developers via APIs, allowing B2B payments to be processed faster than ever before. For SMEs, this results in [cheaper and more convenien](https://home.barclays/content/dam/home-barclays/documents/citizenship/access-to-financial-and-digital-empowerment/Open-Banking-A-Consumer-Perspective-Faith-Reynolds.pdf "")t cash flow management. 

One example that illustrates this is SEPA Instant Credit Transfer. In many cases, businesses have to wait for the procession of a transaction for several hours. This can result in losses. SEPA Instant is a new bank transfer technology that allows this to happen in seconds. Thanks to Open Banking, Payment Service Providers can recognize that the SEPA transaction is an instant payment which allows them to process and clear the amount in *real-time. *

Integration & Access to Payment Schemes

One of the significant advancements in the payments landscape is the digitalization of its infrastructure. The launch of the European SEPA SCT Instant scheme and SWIFT's GPI Instant service marked a development towards cross-border real-time payment services between connected banks. Given the rise in consumers' and corporates' needs for quick settlement globally and the ongoing regulatory push for faster payments, more banks are expected to follow by implementing instant payment capabilities.

Several years ago, however, this would have been available only through your traditional bank. Nowadays, thanks to PSD2, third party providers with a more customer-centric approach can also implement these payment capabilities and build on top of customers' current banking accounts. This provides businesses with full access and control over their spending.

Payhawk, for example, connects directly to 3000+ banks across the EU and allows customers to pay via different payment methods. For instance, by using SEPA, clients can pay bills and reimburse employees' expenses directly from Payhawk. By integrating their bank accounts, Payhawk's customers have a holistic view of their payment account. This comes from the combination of bank, cash, and debit card payments in a single process.

Customer Insights & Control

One of the significant ways Open Banking changes the world of payments is by making financial instruments more available. But also because it provides new insights about spending patterns. Financial services are now becoming easier to access and more tailored to the needs of both businesses and individuals. This helps everyone manage their money more effectively.

One of the reasons for the ease of access is the rise of mobile as a consumer channel for payment initiation. The Mobile app has replaced the online web banking environment as the preferred channel for interaction with the bank. This has led to the rise of payment institutions and payment initiation services with a dedicated focus on the mobile channel replacing the traditional bank.

Employees' capability to initiate all kinds of payments directly from their phone results in valuable spending insights. Companies then use those insights to improve different aspects of their business, such as budgeting. However, once every employee in a company has access to company funds, monitoring the money flow becomes crucial. Payhawk ensures CFOs and managers stay in control by enforcing spend policies on an employee level.

Adoption

One of the challenges that we see in the payments landscape is the lack of standardization in PSD2 interfaces. This is the case among banks on a European, but also often on national level. It is concerning mostly because it slows down service providers willing to offer payment account' wallet' solutions. The result is increase in costs, complexity, and implementation time to create sufficiently high reach.

Nevertheless, we see various technical service providers emerging that take care of the connectivity. Thanks to these providers, Open Banking continues to grow rapidly and has surpassed one million customers (only in the UK) who are already connecting their bank accounts with trusted third parties.