PSD2 didn’t fix banks. Will FIDA do?

It's been around 10 years since the PSD2 legislation. Let's try to understand whether the goals of the open banking initiative have been achieved and what PSD2 gave us. 

The idea of open banking legislation had following main objectives:

1. Empower Consumers

• Give individuals and businesses control over their financial data.

• Make it easier to switch banks or access better financial products by securely sharing data with third-party providers (TPPs).

2. Increase Competition

• Break the dominance of large, traditional banks.

• Encourage new entrants (fintechs, challenger banks) to create innovative products—like budgeting apps, alternative lending models, etc.

3. Promote Innovation

• Open APIs allow developers to build smart tools (think: robo-advisors, instant credit scoring, automated accounting).

• Encourages “banking-as-a-service” platforms and new business models.

4. Enhance Transparency

• Clearer, real-time access to spending, borrowing, and fees.

• Helps consumers make more informed decisions.

5. Improve Financial Inclusion

• People with limited credit history can use transaction data to prove creditworthiness.

• Easier access to tailored financial services, especially for underserved populations.

6. Boost Security & Standardization

• Move away from screen scraping toward secure, regulated data sharing.

• Create a standardized ecosystem for data sharing (e.g., PSD2 in the EU or UK Open Banking standards).

Approximately 10 years ago PSD2 was introduced. Let's break down what has been achieved in 10 years of its existence. 

Security & Standardization

Introduction of 3-D Secure and Multi-Factor Authenticaion and Authorization and nearly full ban of screen scraping definitely made most financial products more secure. Nevertheless, security is a never-ending cat-and-mouse game and fraudster came up with a myriad of new fraud tactics: Session Hijacking, SIM Swapping, Push Notification Bombing, Account Recovery Exploits etc.

Financial Inclusion

Have we succeeded with the improvements of the financial inclusion though? I cannot see a lot of movement that has been started by Open Banking in this regard. It is surely easier to open a banking account now but mainly due to more offering that came in form of Neobanks. Most people who cannot open a bank account with an incumbent bank have way more luck with a Neobank nowadays.

Enhance Transparency

Through the utilisation of Open Banking it's gotten easier to import and see the current account from one bank in the app of the other and there are some Startups that allow you to better categorize your financial transactions what leads to better understanding of the spending behaviour. Having said that, the PFM that works outside of your banking application and doesn't have enough permissions to cancel subscriptions or offer you a better energy or mobile plan is only the first step in enhancing transparency.

Promote Innovation

I dare to assume that the legislator wanted to apply gentle force to banks for them to get more innovative. Unfortunately the incumbents did only the bare minimum to comply with Open Banking regulation. Fortunately we saw a surge of Neobanks and startups that took advantage of finally having access to customer's data and came up with a lot of great ideas.

Increase Competition

Yes, the competition. Has it increase though? It surely has, there is one problem though - the competition increased between the newly created FinTechs and Neobanks. Incumbents do still rule the market. According to pymnts.com: "As of 2023, approximately 10% of consumers reported having their primary bank accounts with digital banks, also known as neobanks.  This indicates that while neobanks have gained traction, the majority of consumers still rely on traditional banks for their main banking needs". It basically means that the Neobanks compete with each other and not with the established banks. 

Empower Consumers

It hasn't been a better time in the history of banking and financial services for the consumer. It doesn't mean that it cannot get better though. What the consumers need is one place where they can see all their expenses and manage their finances. 

In order to offer great financial advice to their customers a startup has to have access to a large scale data set. Only by analyzing the data from different source and for multiple consumers can we offer a valuable advice. 

Conclusion

We learned from PSD2 that regulation cannot push incumbents to innovate. Yes it can foster the innovation outside of the established banking realm and yes this innovation is very valuable for the consumer but the regulator needs to do a lot more for the financial market as a whole to get innovative.