Digital Payments in Open Banking: how they are changing

Digital payments in open banking have undergone the greatest changes in recent months, if not years, and thanks to PSD2 have been radically transformed. This evolution has not only changed, and is still changing,  the habits of users but also the business plan of banks, leaving room in the market for several new players who can now compete in a space that until recently was forbidden to them.

Digital payments in open banking: what’s new

When we talk about open banking, referring to PSD2, we can imagine a new model of banking in which customer data are shared between the various operators, including banks, but also all those who manage credit cards, apps, etc., with the consent of each individual customer.

Having the consent of each individual customer, banks are not only authorised but also obliged to keep data for themselves, and to share them with third parties, which may be other banks or players who may be interested in them and are also authorised to have them.

Digital payments in open banking: benefits for users

What this means for the end customer is a greater targeting of the offers to be received, from a financial point of view. One of their many banks, for example, will be able to know the financial situation in a more in depth way thus coming to understand their  real needs and try  to satisfy them with an aimed offer.

A second advantage, which is at the heart of PSD2, is the increase in competition between players, which for the user can only mean richer offers and at the same time an attractive price to undermine the opponent. In the months before the new legislation came into force, many people started realising that what they used to be able to do only through a bank, they can now also do through an app or startup that offers a certain type of service and that can do,this although it is not a bank, thanks for example to the new directives on digital payments in open banking.

Digital payments in open banking: third parties

It is therefore clear that the market is becoming more crowded and new players are entering the field, who are fast, good at listening to customers’ needs and very reactive as well as often very technological and agile, even structurally, in changing their perspective, services and products. They are often start-ups, but not always; they are certainly those who have seen in open banking a great opportunity and are taking advantage of it. These third parties will be able to access the payment data collected by banks and based on this information they will be able to build their products and services “around” that data, thus offering customers an even better, seamless user experience.

Digital payments in open banking: strong customer authentication

Payments in open banking are strongly influenced by the important security procedures imposed by PSD2 to ensure greater protection when operating online. This raising of the security bar indirectly favours mobile payments (e.g. from mobile phones) across the EU.

The term ‘strong customer authentication’ is used because banks are strengthening their controls to verify the identity of the user and the authenticity of payments. At least three elements of recognition are now needed:

Knowledge. Authentication through an element that only the user knows, a password or a pin.

Inherence. Authentication through something that only the user knows, such as a fingerprint or somatic features.

Possession: Authentication through an object, seen as something that only the user possesses, for example their smartphone.

It only takes two of these three elements for the transaction to be authentic and secure for the bank or intermediary. Although each bank has developed its own procedure, it must comply with these new rules, and can do so in the way it considers most comfortable and effective, for example by asking for a unique code that it sends to the smartphone as a notification, or a mobile token generated by the appropriate application, or a QR code to be scanned, or a combination of all these.

This procedure has an impact on payments in open banking and also in general on authorisations to operate on the account, both via PC and app. The aim is to further create a safer and more open ecosystem, for the benefit of the end user, who should not see these new features as a nuisance or unnecessary bureaucracy.