Crypto Means Business

PSD2 and Blockchain: How Open API Access and Better Infrastructure will Benefit Banks and Fintechs

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If we want the trains to run on time, we’ve got to improve their tracks. Image: Jérome

In the era of regulated open financial services APIs, some think banks will become just the dumb pipes behind a whole host of tech-focused, consumer-facing startup projects. But in actuality, the prospects aren’t so grim.

The critical conversation started after the European Union passed the Payment Services Directive 2 (PSD2) at the beginning of this year, which among other things calls for banks to open up its APIs to third parties. The legislation will give fintech startups access to bank architecture and data that could help them provide better products and services to end customers.

“There’s this knee-jerk reaction when you first talk about PSD2 to think about banks in one playpen being concerned and the fintechs in another playpen sharpening their pencils,” said Marcus Treacher, former HSBC and Swift executive and current Global Head of Strategic Accounts at Ripple. “But whether you’re a bank or a fintech, both groups are going to be able to access more data to create better tech solutions. Nothing is stopping a bank from accessing the data of other banks with those open APIs as well.”

And banks have an advantage in that it has far more experience working with regulators and complying with regulations. This advantage has already been seen in the number of fintech startups that have entered the market with rallying cries of disruption, only to soften its stance after operating in an industry that deals with considerable fraud and a strict regulatory environment.

“Banks will remain a powerful competitor to fintechs,” Treacher said.

The key objective for banks should be improving their backend for the benefit of the frontend.

Treacher and the team at Ripple believe using distributed ledger technology is the best way to do that. Distributed ledger technology stands to simplify the transaction route, making payments faster and opening up corridors that were once expensive and slow.

“With blockchain … the rails the banks run on become high-performance rails,” Treacher said. “If you improve the tracks, then the people that make all the value-add services that go on the trains could do a much better job.”

With better infrastructure, the potential is for both startups and banks to offer improved products and services to their end users. And an infrastructure built on blockchain enabling real-time transaction reconciliation could dramatically reduce costs meaning, according to Anthony Macey, Innovation and Strategy Manager at Barclays, banks can focus on enhanced services and/or become the infrastructure third parties need to create services.

Infrastructure built on #blockchain enabling real-time settlement could dramatically reduce costs. Tweet This

“You’re just beginning to see banks adopt a platform focus, offering API services to attract the best developers,” said Danny Aranda, Ripple’s Managing Director for Europe.

Opening up financial service APIs will bring the robustness and efficiency to the Internet of Value that the current internet stack for the Web already employs. “The internet allows small teams with little capital — but a lot creativity and talent — to take a great idea, execute on it really well and take over huge markets quickly,” Aranda said.

“We’re not at that stage yet with the internet of value … but as the stack matures over time, and there are good fundamentals in the base layers of the infrastructure through blockchain, the potential is that a small team of talented developers can create the next great financial services offering,” Aranda said. “That type of dynamic is going to be good for all stakeholders.”

Bailey Reutzel is an independent freelance journalist focusing on finance, technology and politics. She blogs about US political culture and how people interact with money at

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