Pioneering a defined strategy in 2020, the European Commission outlined its intention to adopt a legislative proposal for a new Open Finance Framework by mid-2022.
Since its announcement, the Framework has seen significant attention throughout Europe as financial services players speculate the ways in which Open Finance will evolve from its predecessor, Open Banking.
During a Finextra webinar on: ‘The impact on financial services as the EU drives from Open Banking to Open Finance,’ panellists called for cohesion, standardisation and effective regulation enforcing a stronger European ecosystem, where Open Finance can flourish, and where consumers will ultimately reap the financial benefits.
Commencing the discussion, Adrian Mountstephens, head of payments and banking ecosystems, EMEA, Equinix, contextualised the progress toward Open Finance in the region, explaining the European Commission has a clear data strategy that is going to enhance and build upon PSD2.
“It will put more data into the hands of innovators, to build more services for consumers and allow them to make better decisions in their lives.”
In his opinion, the European Commission is on a mission to democratise data, including but not limited to financial services. “They have a view about a consent-driven flow of data across the states of the Union. That data is there to empower innovators to deliver services for the community of everyone who lives in the EU to make better decisions.”
The Commission’s data strategy describes this democratisation of data as an environment where rich and consent-driven datasets flow across the EU in adherence with the GDPR. For financial services, this means the Commission’s core mission is for inclusion, to make sure everyone has access to financial products and services.
Will the European Commission rely on regulation for Open Finance?
Speaking to the European Data Strategy released in early 2020, global open banking lead for Mastercard, Hakan Eroglu, wrote that the EU’s objective is to create an attractive policy environment by 2030 in which open data can thrive thanks to improved standards, infrastructure and data availability.
He furthered that “banks across Europe are nearing the completion of PSD2 regulatory compliance, and their focus is now on developing innovative business models and monetising the open banking opportunity. This must include the creation of a clear vision for the role of open data, as in the future delivering good customer experience through technological capabilities will become even more important in attracting and retaining customers.”
Across the European Union, institutions such as the ECB are increasingly supporting initiatives like the European Payments Initiative, where 18 organisations are coming together to build independent payment rails within Europe to function as a building block for Open Banking and one day, Open Finance.
Notably, to unlock the potential of innovation in Open Finance the combination of technology and collaboration must be recognised to move beyond viewing PSD2 merely as a compliance piece.
Tanja Imamovic, open API business owner/tribe leader, Raiffeisen Bank International, echoed this argument, adding that it’s crucial for everyone in the area to understand this isn’t only about regulation. “We talk about a change of mindset, changing the way banks and other players are developing products, how we collaborate with each other and even, how do we innovate.”
Looking to the past to move forward
Imamovic believes that to understand the path toward Open Finance and Open data, we need to reflect on what has happened with PSD2.
While PSD2 implementation has been challenging both for banks and API businesses, Imamovic stated that it provided a significant learning opportunity for the future. It provided a strong base of understanding, allowing banks to be better positioned to comply with future regulations because they no longer view open banking or open finance as a strictly compliance-based activity.
“As we are both a bank and a TPP, we found that the biggest issue we’re faced with today is a lack of standardisation. This means we have to aggregate bank-by-bank, we are facing differences between sandbox production and means that we cannot innovate easily.”
Imamovic believes that in reality, PSD2 did not achieve the smooth transition or smooth innovation that was anticipated. “What does this mean for open finance? If regulators miss the fact that standards across the EU are essential then we will not get a single ecosystem or playground where we can innovate or push out new services. We will just see what exists today where different markets are focused on different timelines. Regulators need to think about EU as one market in order to think about Open Finance into the future.”
Bringing the consumer into Open Finance
According to Laura Mian, open banking innovation driver at ING Wholesale Banking, from the consumer perspective, Open Banking has been a mindset and cultural exercise which has seen banks pick up an educational role to empower their consumers to understand the power of their own data.
When asked about how value propositions can not only be innovated, but how consumers can become informed around the potential propositions in order to search and select the best solutions available, Mian responded that the data empowerment of consumers is something that will really ignite a lot of innovation within banks.
“Looking at how banks can use data and data-driven propositions to really empower consumers and corporates to improve their decision making, there are a number of considerations. By aggregating consented data such as transactional data, we can develop better and more proactive advice for the client to prevent or alert things occurring in their financial lives and beyond.”
In terms of improving financial inclusion, aggregating more and better data will allow better risk scoring capabilities, serving previously underserved sectors, and collaboration across markets. In the anti-fraud space, groups of banks sharing more data also allows for improved virtual alert handling and reduction of false positive alerts.
Open Banking and Open Finance will be core topics discussed at the Euro Banking Association and Finextra’s EBAday 2021. Running in digital format on 28-30 June for its sixteenth year, the event will welcome a host of board directors, chief executive officers and payments and technology heads from Europe’s leading banks, as well as selected fintechs and registration is now open.