Why This EU Law Could Bust Open Retail Banking: QuickTake Q&A

Edward Robinson
23 October 2017, 08:00 CEST

It sounds like yet another arcane regulation from Brussels technocrats. But the revised Payment Services Directive, a European Union law adopted in 2015 and that begins to take effect in January, is nothing of the sort. PSD2, the less-than-catchy title for such landmark legislation, will force banks to share oceans of financial information about their customers with fintech upstarts and other rivals. It could revolutionize how more than 500 million Europeans spend, borrow and invest. For lenders, which have long considered customer data a proprietary asset, life may never be the same.

1. What does PSD2 require?
European Union banks must provide legitimate, outside firms access to customer accounts — if an account holder gives consent. That means banks must send their customers’ data to fintech firms or, if the customer wishes, to the likes of Amazon.com Inc. and Apple Inc., which have their own digital payment services. To quicken the flow of information, PSD2 also requires banks to establish standardized digital connections with other companies.

2. Why is this happening?
The EU has been frustrated by the dominance of its big banks and the high fees they charge. By forcing them to share their customers and data, the EU hopes competitors will offer consumers new products and better service — at lower cost.

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