All you need to know about Open Banking and PSD2
What does Open Banking mean?
In past years, significant changes have taken place in the E.U. regarding the ease with which consumers have access to certain banking and non-banking financial services.
Open Banking is the new way in which banks allow third-parties (other financial service providers) access to consumer data. This means that you have access to a wider range of services to suit your financial needs, benefiting from increased security.
What is PSD2?
PSD2 (Payment Service Directive 2) is the European directive on electronic payment services that paved the way for Open Banking. It aims to make payments more secure in Europe, protect consumers from fraud, stimulate innovation, and help banking services adapt to new technologies on the market.
These regulations allow bank accounts to be interconnected so that they can be used by consumers, banking institutions, and other service providers (fintech startups) to boost competitiveness in financial services.
One of the major changes is that it regulates the activity of new market participants (PISP and AISP), with a focus on introducing new data security requirements. Known as Strong Customer Authentication (SCA), this involves the use of two authentication factors, that previously wasn’t required.
PISP – Payment Initiation Services Provider
Payment initiation service providers facilitate the use of online banking to make secure payments. Companies authorized as PISPs can request permission to log in to a bank account and initiate payments on behalf of the customer from their bank account.
There are several reasons why you may want a company to be able to initiate payments for you. For example, you can use an app that helps you to manage money from various current or savings accounts; this way, you make sure you don’t exceed certain limits so you don’t pay extra fees.
If you allow a regular online shopping company to connect to your bank, payments will be made instantly, without the need to re-enter your card details for each transaction.
AISP – Account Information Service Provider
Account Information Service Providers (AISPs) consolidates information from all of a customer’s bank accounts in one place. As a user, you can get an overview of your financial situation by analyzing your expenses and financial needs much easier.
Digital solutions that can be identified as AISP are allowed only to read information about your bank accounts; this means that they cannot take any other action (cannot initiate or schedule payments).
Why is it important to you?
The new European directive has been designed for you, so you can make online payments through increased security measures, but also through a high degree of transparency of personal data protection.
For example, most of the payments you made online required a password that you received via SMS; now, in addition to this password, you will be asked for other information that involves the use of several elements that only you can know or have:
- password, PIN, static code consisting of the last 4 digits of your ID number;
- knowledge-based questions or certain access phrases;
- devices that generate unique passwords (token-OTP);
- fingerprint scanning, facial or voice recognition, etc.
Through Open Banking, payments are now direct and fast, with no need to share your login details with no one but the bank you have an account with. As you’ve probably already noticed, some banks now require the authorization of online payments directly from their mobile apps with one of the methods mentioned above.
In Romania, contactless payments that have a value of less than 100 RON can, as a rule, be made without entering the PIN code. However, the PIN code may occasionally be requested when the value of several consecutive contactless transactions exceeds the equivalent of EUR 150.
Thanks to these new technologies, you now have the opportunity to use other dedicated financial services, usually offered by fintech startups. For example, it’s now easier to monitor and analyze your personal or business finances through various applications that connect to all of your bank accounts to help you better understand your financial needs and behaviors.
What are the benefits for you as a ThinkOut user?
Through these new regulations, you can use services like ThinkOut, which provides entrepreneurs consolidated data on one or more bank accounts.
This means that you can have access in a few moments, from one place only, to the complete and updated image of your transactions in all your bank accounts. Monitoring and planning your cash flows becomes quick and easy, so you no longer need to struggle with complicated Excel files or spreadsheets.
You have more control over your company’s cash flow and you can add financial forecasts in minutes. You can also view the transaction history from all accounts and have access to a thorough analysis of inflows and outflows so you can make informed decisions about the future of your business.
Take advantage of the new European regulations and try ThinkOut for free for 30 days. If you have questions about the platform, you can drop us a line at any time at firstname.lastname@example.org