Issue link: https://maltatoday.uberflip.com/i/1220547
12.03.2020 13 OPINION Justine Scerri Herrera Dr.Justine Scerri Herrera LL.B,LL.D,LL.M(Univ.of.Gron) is a Managing Partner at MK Fintech Partners, which Maltese entity forms part of 'Michael Kyprianou & CO. LLC' group. MK is top ranked in The Legal 500 and according to Gold Magazine is the third largest in size in Cyprus. Her areas of expertise include Fintech, Blockchain, Crypto and investments sectors. Two birds, one stone? Is PSD2 also beneficial for the Blockchain industry? F or those of you who do not have a background in financial servic- es or banking, PSD2 which is the second Payment Services Directive, is a new regulation which will revolutionise the payments industry and undoubtedly affect all players in the Banking Scene. e Directive's purpose was to in- crease competition and participation in the payments industry from non-banks (TPPs such as PISPs and AISPs) and provide a level playing field for these new players while harmonising certain safeguards for customer protection through secure customer authentica- tion. Some of the new provisions that PSD2 obliges EU member state banking ser- vice providers to comply with, is a new concept called 'Open Banking'. Open Banking will allow merchants such as Amazon to retrieve account data from their customer's bank (with their customer's permission) and could also allow them to initiate payments on their customers behalf (with their cus- tomer's permission) instead of custom- ers being redirected to other services such as Paypal. How does this fintech evolution work in practice? Open banking allows the use of open APIs that enable third par- ty developers to build applications and services around the financial institu- tion. erefore, what this means is that banks are now required to open their customers data by exposing their own APIs. e reality is that most banks are not ready for this new API-driven ac- cess world. Due to Banks archaic core infrastruc- ture and complex back office envi- ronment, most of these interfaces are not ready to be declared 'open' for use meaning ready to for APIs to plug in to their systems. However, they are slowly coming to terms with this new change in the mar- ket's ecosystem and coming to the re- alisation that the market is moving to- wards adopting more digital operating models due to the many obvious advan- tages they offer. Why is this new Fintech Evolutionary state also relevant to Blockchain and Crypto infrastructures? As many of you may have heard, we are currently also in the era of Tokeni- sation. Many persons are becoming more and more interested in tokenisation: issuing and recording certain securities in a tokenised form through the use of Dis- tributed Ledger Technology (DLT) or Blockchain technology. DLT affords issuers certain benefits including; better governance, potential automation of trading and settling (if done via on-chain tokens), more trans- parency and if need allow permissioned access to third parties to manually take care of certain aspects of the platform or liaise with off-chain third parties. Have you made the connection (pun unintended) yet? When it comes to let's say issuing shares or bonds on a token form using DLT or Blockchain technology, one ma- jor part of the plug in and play set-up is: payments. How can one issue dividends or bond interests on chain? One potential solu- tion is, to issue payments via a crypto token just like Bitbond did in Germany with Stellar. One better solution would be to issue payments via a Stablecoin backed and redeemable by a central bank issued currency like the Euro. But the best solution to date in my opinion would be to plug in a Bank or E-Money Institu- tion partner which has an open API. An issuer could partner up with an EMI and when shareholders or lenders (bond) create a wallet on the issuance platform, part of the process would be creating an e-money account to receive dividends, interest, share transfer pay- ments etc. Usually these token issuance platforms will also have KYC-in built in their platform – so this integration could kill two birds with one stone: use recorded due diligence for the bank and company share registry. Usually these issuance platforms can be highly customisable, and many things can be automated. Furthermore, when it comes to linking off-chain third parties or data (such as the Company Registry or a corporate assistant to liaise with the Compa- ny Registry), such third parties can be plugged in via a node which will give them permissioned access to the plat- form, to manually do and upload any work or information needed. erefore, in conclusion although gearing up for PSD2 compliance was/ is a cloudy headache for some players (banks) this regulatory market change may be a silver lining for players in the upcoming Blockchain Industry. is fintech evolution came at a time where there is a pressing need for pay- ment integration services via open APIs in the Blockchain space! It's true what they say: timing is everything!