Following the introduction of the PSD2 Directive, BEAST met with Jacques Pütz, CEO of LUXHUB, to discuss the creation of a shared API platform between domestic and European banks to offer mutualized services in relation to payments and beyond. He also told us about the next technological innovations which might redefine the relationship between banks and clients.
The European directive PSD2 was just implemented in January 2018. What are its main objectives?
The revised Payment Services Directive was introduced by the European Commission with the objective to foster innovation and competition in the daily banking and payment market by opening payment account information and payment initiation to third-party providers. The PSD2 created a new regulated framework for Third Party Providers (including new players) to compete with the traditional banks. PSD2 introduced, inter alia, 2 new types of players: Account Information Service Providers (AISP) and Payment Initiation Service Provider (PISP).
AISP are providers offering services of consolidated information on one or more payment accounts held by a customer with either another payment service provider or with more than one payment service provider. PISP are providers offering services to initiate a payment order at the request of a customer in relation to a payment account held at another payment service provider.
The Regular Technical Standards (RTS) list the definitions of the mandatory interfaces which the banks must provide for free to registered Providers (Third Parties Provider or other authorized financial institutions).
The second goal of the PSD2 is to enhance security of electronic payments. Strong Customer Authentication (SCA) becomes the standard for payment initiation and accessing customer’s payment accounts. But the PSD2 doesn’t only regulate the banks and force them to participate in the API Economy. No! The FinTechs also have now similar obligations to respect compliance, regulation and security.
Four major banks in Luxembourg got together to create LUXHUB. Can you tell us more about the missions and ambitions of LUXHUB?
LUXHUB is a shared API platform between domestic and European banks to propose mutualized services in relation to payments and beyond. Its objective is to act as a PSD2 platform to ensure compliance of banks from a technical perspective as well as managing interactions with third party providers. Banks using LUXHUB don’t need to become a Technical Service Provider.
Our PSD2 solution includes the necessary hardware and infrastructure hosted in Luxembourg as well as the operational management and hosting of the API platform. The LUXHUB platform is available for all European banks and FinTechs. They can take advantage of the diversity of the connected actors.
LUXHUB represents the cornerstone of a successful compatibility with PSD2 (stability, security and speed of solutions). All banks choosing LUXHUB as their PSD2 Hub will publish for example their mandatory API’s in at least 2 European Standards (STET & Berlin Group). Using standards increases their acceptance and utilisation of the published technical interfaces. LUXHUB helps banks to participate in the upcoming API Economy.
How will these ambitions be translated at the European level? Could such an initiative benefit Luxembourg and reinforce its spot as a financial European leader? How?
LUXHUB will be first of all focused on its PSD2 platform. Our platform is open for all European authorized Third-Party Providers and financial institutions. In a European context, we are actively discussing cooperation with other local or national hubs participating in the European payment industry, as well as maintaining close contact with major Third-Party Providers. In my opinion, together with all the other Luxemburgish actors, we can help Luxembourg become a major player in the future financial API economy.
In this context, all our state of the art solutions are designed to be ready for the further challenges appearing in an Open Banking World.
How will the end-consumer benefit from the PSD2 directive? What does it mean for him?
First of all, bank customers will mainly benefit from the new security standards defined in the PSD2 directive. The Strong Customer Authorization will be imposed to everyone who wants to initiate a payment or access payment accounts. In Luxembourg we are used to applying SCA, but this isn’t the case in the whole of Europe.
Second, the diversity of new Apps offering financial services and products will increase significantly in the next months. FinTechs will try to convince bank customers (private & corporate) each day with the best and most exciting user experience. These new competitors will put a lot of pressure on traditional banks. Today’s famous Internet market leaders, Google, Apple, Facebook, Amazon will certainly invest a lot in such financial User Interfaces. The financial data of their customers represents an enormous asset for them.
In the end, the end-customers will not need any longer to entrust their credit cards to third parties. The APIs imposed by the PSD2 directive permit Third Party Providers to initiate a payment directly at the customer’s banks without using credit cards. I think this aspect will be one of the major visible changes due to the PSD2 RTS.
According to you, what are the next technological innovations which might transform the financial sector and redefine the bank-client relationship?
Market size, planning, developing and finally going on the market will be harder and harder. Each week new APPs are published in the different stores and are available for millions of potential customers. Behind most of these innovations are hidden some great APIs. In my opinion, innovation in the next few years will be done especially by defining APIs.
Banks must take care that they will not be just the necessary data provider which has to comply with all the regulations and obligations and, on the other side, the FinTechs will grasp the whole control of end-customer through fantastic APPs and UI’s.
Banks must decide now which role they want to adopt in the future. PSD2 compliance represents only the first step, but in fact I recommend banks to re-evaluate their business models in the light of the new API economy. PSD2 and Open Banking in a larger view will change the whole banking industry.
Until now, the whole chain of business was maintained by the banks themselves. In the future, successful innovative business will only be possible by cooperating with other partners or banks. LUXHUB sees its mission as helping financial institutions and TPPs with these challenges.