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Learn the core concepts of Open Banking |
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Learn the key concepts behind Open Banking, its stakeholders, and the technologies involved.
The global financial services market is oligopolistic in nature. A few key players get to define market dynamics and the rate of innovation. Banks have the sole ownership of the customer data and they have the power to decide on the quality of services that the customer experiences.
Open banking advocates the revised Payment Service Directive (PSD2) and promotes greater financial transparency. It allows third parties to securely and rapidly build financial services with the use of open APIs.
The Payment Services Directives, also known as PSD and PSD2, are two pieces of legislation (European Union directives) administered by the European Commission (Directorate General Internal Market) to regulate payment services and payment service providers throughout the European Union and European Economic Area (EEA).
PSD2 is the revised Payment Service Directive, which was mandated in 2016. It stems from PSD1, which was mandated in 2009. PSD2 requires Europe's banks to give regulated third-party providers (TPPs) access to customers' account information and payment initiation with the customers' permission and consent.
Some of the benefits of PSD2 include:
- The customers can manage their finances using third-party applications, e.g.- pay your bills using social media accounts.
- More consumer choices and better online and mobile payment methods.
- More opportunities for the financial technology companies to introduce new and innovative banking services.
- Enhanced payment security.
- Ability to standardize the payment systems and impose limits on transaction fees to ensure lower costs for the consumers.
There are six categories of stakeholders that actively participate in Open Banking.