A trusted ecosystem to enable more financial services innovation

Due to never-ending tech innovation and several waves of regulation – and also taking into account changing consumer habits – the financial services industry is evolving at a rapid pace. New regulated players are emerging, legacy companies are transforming their business models and services, third-party players are trying to become the missing link between all stakeholders, etc. One question remains: who can I trust? And also, who’s offering quality services that will make my life easier?

PSD2 as a starting point: the cornerstone of Open Banking

The era of Open Banking officially started, in Europe, with the second payment services directive (PSD2, Directive (EU) 2015/2366) which came into force on 13 January 2018 and went into full effect on 14 September 2019.

With PSD2 being mostly about banks opening their accounts data – with the approval of the customers – to benefit from more innovative and smoother bank-type services and notably payments, the security and privacy of personal banking data are at the very center of this European legislation.

The European Central Bank lists the main objectives of PSD2 as follows “(i) to contribute to a more integrated and efficient European payments market; (ii) to further level the playing field for payment service providers by including new players; (iii) to make payments safer and more secure; and (iv) to enhance protection for European consumers and businesses”.

Raoul Neu, Solution Architect at LUXHUB, highlights: “While the requirement for Strong Customer Authentication at payment initiation and account access increases the protection of PSU assets as well as the requirement to follow market initiatives for the API specifications eases the work of TPP, the use of eIDAS certificates for authentication of the latter brings the biggest advancement in terms of trust.

“To provide access to their Interfaces banks can rely on these certificates to clearly identify TPPs and rely on the due diligence conducted by the National Authorities on these entities, thus saving a lot of time and effort in not having to perform an additional KYC”.

As explained by the European commission, PSD2 brings several major consumer benefits, such as:

• it tackles fraud in online payments: PSD2 introduces strong security requirements for electronic payments and for the protection of consumers’ financial data to ensure their privacy is respected by all market operators,
• it opens the EU payment market to competition and therefore sets the stage for the future. With online financial services constantly evolving, the new rules apply equally to traditional banks and to innovative payment services and new providers, such as FinTechs. These players, regulated under EU rules, are bringing a wealth of consumer benefits.
• it increases consumers’ rights in numerous areas. These include reducing consumers’ liability for unauthorized payments and introducing an unconditional refund right for direct debits in euro,
• it prohibits surcharging, which is additional charges for payments with consumer credit or debit cards, both in shops or online,
• finally, it improves complaints procedure – PSD2 obliges Member States to designate competent authorities to handle complaints from payment service users and other interested parties, such as consumer associations, if they consider their rights established by the Directive have not been respected.

Building similar ecosystems beyond PSD2

The number of data generated every day is at an all-time high and is ever-growing in the digital world we live in. Beyond sharing data in the banking world through PSD2, users are eager to use new digital services in the wider finance world, giving way for the development of Open Finance, Open Insurance, etc. Call it Open X in general.

Sharing personal and therefore private data requires the highest standards in terms of security for both the users and the companies, whether they be recognized financial institutions or innovative Fintech startups. In the world we are currently building, filled with opportunities and inevitably unique and out-of-the-box solutions, trust acts as one of the main differentiators when selecting a service, provider or looking for a new business partner.

The growing number of data exchanged, and the new habits/needs of consumers require a high level of protection. Even though most players are eyeing and anticipating a new regulatory wave that will on the one hand protect the consumers and on the other force the industry to adapt, no rules are currently in place. More concretely, every single company that is managing, using or handling has to behave in a professional way, meaning using secure protocols, following strict internal rules and obviously complying with the regulation, if applicable.

This clearly opens the door for more innovation in the financial services industry as well as new standards to ensure optimal security and inevitably trust. Just like GDPR – Global Data Protection Regulation – that now applies all over Europe and that is even being “copied” outside of the continent, additional data regulations will emerge to create a level playing field with the highest standards, with the goal to protect the end consumer.

A set of common rules to enable more trust

Creating an ecosystem of trust might therefore be one of the necessary steps to, first, build a set of specific rules that apply to all players, and then, enable an easier exchange of services, products and of course data.

The new LUXHUB Marketplace, building on its PSD2 compliance experience, has the ambition to become the trusted platform for all Open Finance services, and has therefore begun to create this set of rules to standardize engagement and consumption, and then become a key accelerator in the development of all present Fintechs/services providers.

Moreover, such Marketplaces benefit the overall Open Finance ecosystem, with innovative services available for all actors with the ambition to embed finance-oriented solutions within their applications/websites.

In the LUXHUB Marketplace, these rules are materialized through a series of badges that are thoroughly delivered after specific checks and verifications (emails, website, admin ID, RCS, etc.) and that express different levels of trust and service level.

• “PRO” badges are granted to TSPs (Technical Service Provider), following due diligence processes inspired from PSD2. It emphasizes on standardized:

1. Onboarding for provider
2. Securitization of consumption
3. Request access possible

• “REG” badges stand for “regulated” and notably concerns the banks’ PSD2 APIs, and therefore corresponds to the highest financial services standards in terms of trust
• “Verified” badges apply to companies/startups that promote their services in the Marketplace after a lightened due diligence process verifying the company status, activities and representatives.

As explained by Jacques Pütz, CEO, “LUXHUB has been promoting innovation as well as collaboration since its foundation. With the Marketplace and its trusted badges system, it aims at acting as the glue between the different stakeholders, to enable the efficient transformation of the financial services industry as we know it today. With all these actors, we are shaping the future of finance”.