Financial Services & Insights
In 2020, more than ever before, open banking is changing the future of finances. The open banking standard is enabling regular customers to gain access to financial services and products offered by regulated third-party providers. Because this new standard is free to use, every company can become a provider if they follow certain steps.
Before looking at the top 5 most important steps to becoming a third-party provider (TPP), let’s take a closer look at the PSD2 directive.
What is the new PSD2 Directive all About?
The new PSD2 directive 2015/2366 aims to lay out a complete framework on how AISP (Account Information Service Providers) and PISP (Payment Initiation Service Providers) are required to access the financial information of customers. TPPs will need to build their own services by accessing the information stored by banks all across Europe.
In simple terms, banks will need to provide their customers’ stored information to the TPPs via an API interface, so that customers will be able to access their private information on demand. Because this protocol comes with huge opportunities for numerous companies to gain the status of TPP, it is important to understand how regular companies can become third-party providers.
In addition to fintech companies and banks, insurance companies, merchants, and big tech companies can also become TPPs. For that, they need to apply for a PISP or AISP license. This entire process is listed below:
1. Clearly Define your Use Case
Similarly to starting your own business, when you need to define a use case and set up a strategy, becoming a TPP involves defining what your business will entail. For example, you might be a Fintech that aims to launch a revolutionary payment system for customers, or a bank looking to merge the customers’ information across multiple banks. You need to have a powerful and comprehensive strategical plan for scaling in order to get on the radar of PISP approvers.
2. Install APIs
In order to become a TPP, you need to be able to integrate vital information from banks. For that, the banks need to use advanced APIs in order to share their info with external entities. As a TPP, you will need to use advanced APIs in order to integrate the information from multiple banks. This is where Tremend can help. We have implemented Strong Customer Authentication (SCA) for various clients and have enabled numerous banks to benefit from our API integrations.
3. Define the Target Audience
Because PSD2 has gone live all across the EEA (European Economic Area) countries, it’s definitely quite a difficult task for a TPP to build a business across all this extended area. In order to be approved as a TPP, you need to define your target audience, along with the geographical area of work, and also consider the services you want to provide.
4. Individual or Central Registration
The fourth step in the process of TPP validation involves thinking of what entity to use in order to register. As an individual TPP partner, you won’t be supervised by the European Banking Authority. However, as a central TPP, you’ll need to follow more practices and processes.
5. Being Able to Connect to the Merchant
As of now, the entire process of authenticating between TPPs and ASPSPs is quite blurry. However, according to the RTS, also known as the Regulatory Technical Standards, the TPP should be able to provide a streamlined network between the merchant and the customer. After you have followed these steps, it is time to enroll in the open banking directory, test your services in the directory sandbox and ultimately go live. If you need further assistance regarding this process, you can always drop us a line at firstname.lastname@example.org or contact us.