Open Banking and PSD2, or the Payment Services Directive 2, are two important regulatory frameworks observed Bahaa Abdul Hussein. These have had a significant impact on the financial world, especially in Europe. While similarities exist between Open Banking as well as PSD2, there are differences in aims and scope.

The Similarities

  • Customer Information/Data Access: Open Banking and PSD2 both aim at empowering customers by granting control over financial information/data. With the requirement that banks and financial bodies provide customers with standardized secure mechanisms to share financial information, only authorized TPPs have access.
  • A Boost in Competition: Both frameworks promote innovation and competition in the financial world. TPPs can access customer data through Open Banking and Consequently, this creates a balanced playing field regarding new entrants.
  • Consent with Security: Open Banking and PSD2 make the privacy and security of customer data a priority with robust customer authentication and stringent standards of consent. Both frameworks allow customers to have control and management over their own data.

The Differences

  • The Scope: Open Banking refers to a broader concept. It is implemented by banks, voluntarily, permitting the sharing of customer data and collaboration with TPPs. Contrastingly, PSD2 is a directive of the European Union. It mandates banks to give accessibility to customer accounts to only authorized TPPs. It also introduces certain standards for payment services.
  • The Regulatory Authority: The system of Open Banking is not a particular regulatory framework. Rather, it is a concept motivated by industry initiatives and the forces of the market. PSD2 is a legal directive by the European Commission, requiring member states to execute its clauses into legislation.
  • Third-Party Accessibility: Open Banking and PSD2 can enable TPPs to gain access to customer data, but there are differences in the levels of granted access. In Open Banking, the data sharing scope is decided by the agreement between the customers and their banks. PSD2, on the other hand, mandates that banks give access to payment initiation, account information, and fund confirmation services to only authorized TPPs.
  • The Geographic Applicability: The system of Open Banking is not merely limited to the European Union. It may apply in several countries globally. Nonetheless, PSD2 only applies to member states of the European Union and seeks to simplify payment services standards within the European Union.

The Nature of Banking Systems

While both systems are equipped to give more control to customers while maintaining the smoothness of issues of security, they have their differences. In terms of differences, the PSD2 is limited in its use as it is only applicable to the European Union. Financial entities must have a grip on similarities and differences in these frameworks if they are to implement services in a customer-effective manner. Thank you for your interest in Bahaa Abdul Hussein blogs. For more information, please reach out to www.bahaaabdulhussein.com