Payments UK has published a simple guide to two regulations that both require banks to open up their customer account data to certified third party providers. The revised Payments Services Directive (PSD2) has several points in common with the UK's Open Banking requirement for the nine biggest current account providers to allow third party access. But it's becoming increasingly important to clarify the distinctions between the two sets of regulations as the implementation process gets underway. So how do PSD2 and Open Banking work together and what differentiates them?

Open Banking is an initiative mandated by the UK's Competition and Markets Authority (CMA) and will use application programme interfaces (APIs) to enable third parties to have secure and safe access to current account data. Payments UK states that Open Banking “will give customers more control over their data and will support an emerging market of new, exciting third party products and services, such as tailored price comparison websites.”

In many respects, Open Banking therefore sounds very similar to the pillar of PSD2 that allows third party access to current account data. In fact, PSD2 requires all payment account providers across the EU to provide third party access. According to Payments UK, PSD2 provides the legal framework within which the CMA requirements will have to operate, and the CMA mandate will need to be delivered in a way that is PSD2-compliant.

Here are some of the key differences:

PSD2:

• applies to all payment account providers in the EU, which could include flexible savings accounts, corporate accounts and credit card accounts;
• it doesn't prescribe a collaborative technical approach or a standard;
• PSD2 is a 'maximum harmonisation' directive, so the UK regulators can't require payment account providers to go beyond PSD2 requirements.

Open Banking:

• applies to the nine biggest payment account providers in the UK;
• it only applies to personal and current accounts;
• it requires the nine payment account providers to collaborate on implementation of an open API standard;
• needs to meet the legal requirements of PSD2. This will be difficult particularly with regards to the regulatory technical standards (RTS) on strong customer authentication, which have not yet been agreed. Payments UK states: “The set of RTS is critical to the specification that underpins Open Banking.”

This Venn diagram shows where PSD2 and Open Banking overlap and where they differ: