The European Initiative to Unlock Banking, Explained


Banking upstart Starling has a great overview of Europe’s Payment Services Directive 2 (PSD2), which was successfully voted by European Parliament in October.

The initiative is of the same ethos as PSD1—helping to create a more open, competitive and interoperable through common standards. PSD1 introduced the concept of a Payment Institution, an organization that’s regulated but not as strictly as a traditional bank, which opened up the industry to non-bank players like Paypal. It also introduced the Single Euro Payment Area (SEPA) as a set of standards to facilitate low value payments in the region.

The general idea for PSD2 is that the rule requires banks to create open APIs. The thinking is that this will spur innovation by giving non-bank entrants and vendors access to your bank account.

Starling nicely outlines the impact of these changes on day-to-day transactions, such as buying something from Amazon. Today, that transaction is enabled by a series of intermediaries including the merchant’s acquirer and the customer’s card scheme.


With the implementation of PSD2, you’re able to give Amazon permission to execute payments through your bank account. This system is both cheaper and more convenient.


But the biggest impact will be down the line as retailers and banks build innovative products and services on this platform and create tailored experiences for specific situations.

“Opening up bank APIs expands those possibilities,” Accenture’s Jeremy Light told us in an interview in August. “A lot of innovation will come from fintech startups that will be able to develop customer propositions through banking and payment APIs.”

Check out Starling’s full PSD2 primer.

Top photo: Flickr