At the end of 2015, the European Parliament had called for the implementation of the payment services directive (PSD2) and access to accounts (XS2A). This EU regulation will open up the payments system in less than two years, currently run directly by banks, to the open market. The resulting increase in competition foretells a wider and more economic choice for customers.
For the first time, banks and financial institutions are going to have to share their API (application program interface) to third parties, which can potentially open the floodgates for further digital disruption in FinTech. With the rejigging of existing banking models, these new directive will require financial institutions to adapt or die. Failure to keep up will result in lost revenue, which will be open to innovative new businesses waiting in the sidelines.
Since 2010, Norway based tech firm, Auka, has focussed on building and operating regulated and licensed end-to-end payments infrastructure connecting financial institutions, merchants and consumers. Instead of usurping the role of banks entirely, Auka allows financial institutions to then license the infrastructure and applications and launch mobile payments products under its own brand in a span of a few months.
Daniel Döderlein, CEO of Auka, says, “traditional banks are facing a massive change to the way they do business – and how they interact with their own customers – in the shape of the second iteration of the Payment Services Directive” (PSD2).
“Banks need to be prepared to use the Access to Accounts (XS2A) provision within the new regulations to its full extent. It’s not just about complying with requests to provide their API, but building the kind of sticky, high-frequency use services that they can then plug their rivals’ APIs into, ensuring that they are the brand that customers have facetime with,” Döderlein said.
In plain terms, banks are faced with one of three choices: do nothing and accept that challenger firms will steal customers away from them, develop their own system in house, or buy an off-the-shelf package they can customise to their own needs.
But developing a secure mobile payments platform takes time: it has to be secure, stable, intuitive and something customers want to use. This is where Auka comes in. The company, which developed and perfected Norway’s mCASH system, now has 17 banks and several thousand merchants running live on it platform, deployed on a PaaS/SaaS (Platform as a Service / Software as a Service) model. It announced its entrance into UK today at Money 20/20 in Copenhagen.
Auka relies on Google App Engine, a service of Google Cloud Platform, for its backend operations.
According to Döderlein, PSD2/XS2A is going to disrupt the market and blow financial institutions out of the water if they don’t start preparing now.