PSD2- What Is It, and Where Is It Headed?

 

I was fortunate enough to have attended and spoken at APIDays Berlin, that occurred between 7-8th November, 2017. APIDays is a series of high quality and reputed conferences dedicated to APIs. Every conference in the APIDays series tackles a different topic. The most recent one, APIDays Berlin, was focused on banking APIs, more relevant than ever in the world of PSD2 and open banking.  

There were a lot of topics covered by some great speakers in the 2 day event, with representatives from over 30 different countries. I’ll try my best to put into words what I learned during my time at the conference.    

But What is PSD2?  

It’s important to understand the context behind the conference. The Payment Service Directive (PSD) is an EU directive to regulate payment and payment service providers throughout the EU, and was adopted in 2007. Since then, there’s been massive digitalization and innovation in the payment space, that mandated an update to the PSD.  

PSD2 aims to fix this, and provide a level playing field for all players, existing and new ones, while fostering innovation and transparency within the context of the new digital channels that technology has provided us with.  

A key way of promoting transparency and innovation is through APIs (Tweet this), with regulators pushing players to have PSD2 compliant APIs that can be accessed by the public. By January 2018, PSD2 will require over 5000 financial institutions in Europe to provide the relevant information to consumers via APIs.   

Disruption is Eminent  

The need for openness is reflected around the world. 76% of finance companies in the world have, or are planning to have an open or partner based API within the next 12 months1. The finance space, which contains over 1000 companies and valued at $867 Billion, is ripe for innovation. As data gets more open, barriers of entry will be torn down and existing payment and service providers can no longer assume a monopoly within their verticals. There’s a lot of talk of tech companies trying to enter the finance space as well, like Amazon, Apple and Facebook, existing finance companies must ensure they’re well prepared in the current digital ecosystem to tackle these threats.  

New Business Opportunities and Challenges 

Platforms have always been a major driver of growth and revenue in the age of the internet due to their low liability, less dependence on capital and manpower and high network effects. For companies to become more agile and transition into various segments, especially the bigger monolithic banks, they need to start thinking about how their data and functionality across various modules can be exposed via APIs. An organization’s core assets can be reused with an API, that can allow the organization to quickly venture into new domains and business models with lower turnaround times. These APIs in turn allow the company to also build marketplaces around their services, not just promoting innovation and growth for the company’s services, but also making consumers dependent on them.  

Open Banking also allows companies to scale faster and capture unique, niche markets that may have otherwise proven harder. The concept of openness can promote a broader financial market, with new entrants across various microsegments.  

For companies to really harness the power of APIs, there must be a level of maturity between the business and engineering staff. Governance and standardization is extremely important in such cases, ensuring that various internal and external stakeholders are aligned with what the API is supposed to do. 71.6% believe that open banking APIs must involve a REST interface and 65.5% want an open standard in banking APIs2 

API Design, Documentation and Management vendors will be quite sought after from various companies, since no one wants to reinvent the wheel. Specification formats like the OpenAPI Specification (OAS) and documentation formats like the Swagger UI are highly used, and helps companies standardize their development across the lifecycle.  

Third Party Developers To Innovate Over Your APIs 

With any open or partner based API model, you need users. You want your APIs to not just be consumed, but also support innovation over your existing infrastructure to allow third parties to build your platform or marketplace. Developer ecosystems are essential to a company’s API business model. Any partner or open API model requires some level of Dev Portal, and it’s crucial for organizations to invest in resources around the portal.  

A dev portal is just a part of an organization’s overall developer experience (DX) strategy. The objectives of a good DX strategy are to make sure your end consumers’ journey from discovery to adoption of your API is smooth and quick. A good DX strategy ensures your digital marketplaces and platforms have a consistent influx of good applications and innovation built on top of them.   

I spoke on this subject at the event. Here are the slides from my session, Executing on API Developer Experience:  

Closing Notes 

I may have captured a sliver of all the amazing and informative talks and conversations I had at APIDays Berlin 2017. If you have any additional insights you’d like to share, or feel I missed something important, leave a comment below! 

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