The idea that fintech is a threat to the financial services sector is bubbling – a 2015 PwC survey found 83% of financial services professionals were worried about losing business to upstart fintech companies.
There is no doubt that fintech has been a disruptor across the financial services industry. The former chief executive of Barclays Bank in the UK has described the technology as an “unstoppable force” and he’s right – the fintech revolution has taken hold, but contrary to common concerns, it is not a threat. It is one of the greatest opportunities for banks to change the way they deliver services and products in the application economy.
Investing in and developing software is the critical success factor here for banks, and the only way to keep pace with the rapidly changing industry and the challenge thrown by fintech innovators, who describe themselves more as technology companies than financial services players. As banks transition from traditional financial services organisations to ones driven by software applications, planning, building, managing and securing applications must be the key priority.
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“The fintech sector is growing, and that growth is gathering pace. Fintech will be the tech battleground of the future, as financial services providers of all stripes fight it out for primacy.
We hear a lot about the companies and the technology at the fintech cutting edge. What we don’t hear a lot about are the people behind those companies, and behind that tech, making sure everything is legal and above board.
It might not sound as ‘sexy’ as being the creator of a tech start-up, but being one of the lawyers supporting the industry means being an essential part of its growth.
That’s the message that Finuas, the Law Society and Fexco are trying to get across with the FinTech Symposium, taking place this Friday (2 September) at Blackhall Place, Dublin.
Eleanor Daly, general counsel at Fexco and someone who has been instrumental in organising the symposium, spoke to us earlier this month about why a better legal understanding of fintech is essential to growing the sector.”
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Open banking and APIs are offering traditional financial institutions the efficiencies and service improvements normally associated with nimble fintech disruptors.
Open banking is the key to traditional financial institutions holding on to the distribution of financial products, and by extension remaining relevant and profitable in a digital age.
In a study by Temenos, 52% of respondents said they see opening up their platform to third parties as more of an opportunity than a threat, and 60% said doing so is essential to deal with new non-bank competition.
On the other hand, 53% said they can’t exploit a wide enough range of user interfaces due to technology or cost constraints, and only 30% saw open banking as a high priority, grappling as they are with other challenges such as low interest rates and regulation.
Regulators, however, might be one of the biggest drivers of change in open banking, particularly in Europe.
Europe’s Payment Services Directive 2 (PSD2) includes provisions to force banks to open up access to customer data to third parties via APIs by 2018. Already, more APIs are come to market, addressing the demands of PSD2.
For most banks, it makes commercial sense to buy an API solution or tooling to implement faster, rather than invest in building a one-off bespoke solution. To address PSD2 demands with a bespoke solution not only harms the overall ecosystem, but also creates additional risk and expense.
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On 12 August 2016 the European Banking Authority (EBA) published a Consultation Paper on draft regulatory technical standards on strong customer authentication and common and secure communication under the revised Payment Services Directive (EU) 2015/2366 (PSD2).
PSD 2 AND EBA
PSD2 entered into force on 12 January 2016 and will replace the current Payment Services Directive (in force since 2007) as of 13 January 2018.
Under PSD 2, EBA has a role to develop (in close cooperation with the European Central Bank) a range of draft regulatory technical standards (RTS) specifying, amongst other, the requirements of strong customer authentication and the exceptions thereto.
SECURITY OF PAYMENTS UNDER PSD 2
PSD 2 introduces strict security requirements for the initiation and processing of electronic payments, which apply to all payment services providers (PSPs).
PSPs will be bound to apply strong customer authentication when a payer initiates an electronic payment transaction. Strong customer authentication is an authentication process that validates the identity of the user of a payment service or of the payment transaction and is based upon the use of two or more elements categorized as:
Certain requirements for the protection of online payments have already been implemented through the EBA’s Guidelines on the Security of Internet Payments, which was issued on 19 December 2014 and came into force on 1 August 2015.
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Banks should avoid treating the delivery of CMA and PSD2 APIs as just another compliance project and instead take the same approach as when delivering new customer products such as mobile banking apps or mortgages .
On August 9, the Competition and Markets Authority (CMA) released the final report on its investigation into the retail banking market. It found that the market is “still not as innovative or competitive as it needs to be”. In response the report outlines a package of remedies which include mandating that larger banks adopt and maintain a common standard for open APIs (Application Programming Interface). To comply – and to benefit -the best approach for banks is to treat APIs as customer products. But what does this mean in practice?
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The EUs Directive on Payment Services 2 (PSD2) will accelerate the fragmentation of Europes retail banking industry following the global financial crisis. The opportunities brought about by PSD2 will energize banks with strong brand awareness and advanced digital offerings into pushing the boundaries of open banking.
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More than two-thirds of bankers are uncertain about the adoption of the revised Directive on Payment Services (PSD2), according to research by audit firm PwC. In a report, PwC revealed that 68% of bankers feared that the directive, which would standardise access to customer data and banking infrastructure, will cause them to lose control of the client interface.
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(As anticipated) the European Banking Authority (EBA) has published a “Consultation Paper on the draft Regulatory Technical Standards specifying the requirements on strong customer authentication and common and secure communication under PSD2
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Two in three European bankers are adopting a risk-averse wait-and-see approach in response to the uncertainty an open application programming interfaces (API) could bring. Heres why the PSD2 mandate could be the best thing for banking since the recessionary shake-up of 2008
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