Europe begins Open Banking era in subdued style

Europe begins Open Banking era in subdued style

The EU's second Payment Services Directive (PSD2) took effect on Saturday 13 January, bringing with it the start of Open Banking, however the prospect of a sudden revolution is likely to be thwarted by unresolved technical and regulatory issues and a lukewarm reception from consumers.

The central feature of the directive is the rule that banks must allow third parties, including digital startups and challenger banks, access to their customers' financial data including transaction history and spending patterns.

The rule has been seen as bringing an end to the bank's long-held grip on payment services and as a catalyst for a potential revolution in retail banking.

Fintechs and digital payment service providers will gain greater access to high street banks' consumers. However, these same banks will also be able to develop more innovative and wide-ranging payment services of their own via greater use of application programming interfaces (APIs).

But the likelihood of any overnight overhauls of the payments market has been downplayed by industry commentators that have pointed out the underlying complexity of the directive and the fact that many features of PSD2 will not come into effect until at least 2019. 

For example, the technical standards underpinning the directive will not be finalised until September 2019. "Consumers won't see a dramatic change," said Jeremy Light, Head of Accenture Payment Services. "But we do expect banks and retailers to develop products in the coming months."

However, says Light, the success of Open Banking will hinge on customers embracing the changes, not least because any sharing of financial data with third parties is dependant on consumers' consent.

A recent Accenture survey found that two thirds of consumers are reluctant to share their details with third party providers and "overwhelmingly trust their bank with financial information", said Light.

Others have highlighted consumers' fears around the security of their data in the open banking era, however this fear has also been downplayed by numerous industry figures including the providers of financial APIs - the source by which this data will be transmitted. 

"A lot of scare stories have been written about the security surrounding Open Banking," said Francesco Simoneschi, CEO and founder of API provider TrueLayer. "The reality is that for a company, app or service to use personal financial data through Open Banking, it needs to pass rigorous security and compliance procedures, including regulatory licensing."

The official start of Open Banking, has however led to an increase in the number of licensing arrangements for new players including UK-based Emma, which today announced its approval from the Financial Conduct Authority for its banking app which it intends to integrate with challenger banks such as Monzo and Revolut.

While the rate of adoption of new services among consumers is unknown, what is more certain is an increase in the number of new services that will be launched in the months to come as incumbent banks and their digital challengers vie for the upper hand in the Open Banking era.

Comments: (5)

Bradley Howard
Bradley Howard - Endava - London 15 January, 2018, 13:47Be the first to give this comment the thumbs up 0 likes

That same Accenture report was already discussed elsewhere on Finextra (see here). I'm not sure that gives the conclusion of a "lukewarm reception from consumers".

If PSD2 is implemented well, it could be fantastic for consumers and retailer loyalty.

Jan-Olof Brunila
Jan-Olof Brunila - Swedbank - Stockholm 16 January, 2018, 08:00Be the first to give this comment the thumbs up 0 likes

The consumers are focused on consumption and are not so interested in the payent process and its particularities. Consumers will not use any complex and difficult to access services but prefer easy to use and secure payments. The security issue is something consumers assume is built-in and not an added value. The PSD 2 may be more of interest to the payees receiving payments from consumers. Payees may prompt the consumer to use a payment service payees prefer due to low cost and low risk for the payee. If the consumer can use the prompted  payment, it is likely to be used. Even if it is more risky to the consumer than another available service since payees are not under obligation to give consumers terms/conditions info on payment services the consumer already has signed up for.  

Giles Sergant
Giles Sergant - Consultant - Newcastle Upon Tyne 16 January, 2018, 08:571 like 1 like

When they look back I fear the CMA may deeply regret pushing our UK banks into XS2A more than 18 months ahead of the mandated PSD2 timetable for Europe, and crucially, before the rules & regs are fully cooked.

Even thru an optimistic lens the key comms, security & liability protocols for PISP activities (in partic) might just have been figured out, agreed & bedded down under the RTS by end 2019. 

Until the it’s the Wild West for ASPs & TPPs ... & the fallout, the failures & the fraud will reach the public’s ear in nanoseconds.

So too the EC may deeply regret not taking the EBA’s advice to ban Screen Scraping. Instead of outlawing ALL scraping activities & nullifying the sharing of Account Login credential by, say, enforcing 2FA (incl hard device-ID checks) the EC has pushed Screen Scraping forward as the required fall back mechanism: in such a way that all ASPs have little choice but to leave that channel open for some time to come. Sufficient time for the Daily Mail to have done its worst.

Cue fraudsters masquerading as TPPs: “tick here to permit us to access your current a/c and enter Login & Password here”. 

A scammer’s heaven.


A Finextra member
A Finextra member 16 January, 2018, 11:541 like 1 like

Accuracy is important - API stands for Application PROGRAMMING Interface.


Bradley Howard
Bradley Howard - Endava - London 16 January, 2018, 13:112 likes 2 likes

@Giles, I agree entirely with your point about scammers' heaven.

I also congratulate you on the highest ever use of multiple acronyms on a Finextra article. :-)