Why the lack of Open Banking standards is putting a halt to innovation
Andrea Dunlop, CEO of merchant acquiring, Europe at Paysafe | 14:32 Wednesday 9th January 2019
Since the implementation of the second payment services directive (PSD2) on 13th January 2018, banks, third-party providers and regulators have been at something of a standstill due to the lack of clarity over how Open Banking regulation should be complied with.
While they understand what the regulation is and why it’s been introduced, the problem is that there is a lack of standards to explain how to implement the legislation practically. PSD2 was intentionally drawn up to not be prescriptive in how it should be applied by banks in order to facilitate a greater degree of innovation. However, this is in itself is stalling innovation. As things stand, a bank can define its own API interface, which is resulting in the lack of standardisation across the industry needed to enable third parties to build successful, scalable products.
To make matters even more confusing, recognising this slow open API rollout, the European Banking Authority (EBA) tried to address the situation by introducing the concept of a fall-back, whereby if a bank’s API was substandard or not implemented by the deadline, it would have to provide a screen-scraping solution. This is a process where a customer shares their account details with the scraper and they use these credentials to log into the relevant accounts with the bank and collect the data or initiate a payment.
While this may be satisfactory to the EBA, many banks have interpreted this as a path to legally comply with the legislation without providing a workable API.
In addition to the lack of standards causing confusion around how Open Banking should be implemented, it’s also having a knock-on effect on widespread consumer buy-in. As with any new service or product, in order for it to succeed consumers need to be aware of the benefits of Open Banking services. But as it stands, consumer awareness is still low; in fact over half of the adults in the UK admitted to not knowing what Open Banking is. Due to this lack of awareness, the pressure for banks to correctly comply with PSD2 is not high. Regulators need to not only educate banks on the directive, but consumers too, particularly around how it can improve the service they receive.
For Open Banking to fully be realised across Europe the onus is on regulators and the EBA. They must enforce a tight framework on the banks and penalise those who are failing to comply with the regulation or using the fall-back approach. Without strict guidelines to outline how to comply with PSD2, banks are hindering innovation, not just for themselves, but for consumers who are looking for more convenient and simple ways to handle their finances.
SIGN UP TO OUR NEWSLETTER TO RECEIVE MORE NEWS LIKE THIS STORY
British Business Bank UK Network aims to improve funding awareness across UK
The British Business Bank UK Network will help to improve awareness of funding options across the UK by directly approaching business finance professionals...
Building with confidence in challenging times
It is difficult to think of a time in the past three decades when the chasm between the interests of UK business and the Palace of Westminster has been more exposed than the Brexit debacle...
Real Property Finance passes £100m in deals with Cambridge & Counties Bank
Cambridge & Counties Bank has provided more than £100m of loans for the clients of Real Property Finance (RPF)...
Metro Bank reports 48% increase in lending
Metro Bank has reported that its lending increased by 48% in 2018 compared with 2017...
Metro Bank appoints Luke Lloyd-Davies to advisory board
Metro Bank has appointed Luke Lloyd-Davies to its advisory board...
OakNorth: how some of the entrepreneurs we’ve lent to first got started
For many, the new year brings with it new possibilities and the chance to explore new opportunities...
Hanley Economic BS to push self-build offering
Hanley Economic Building Society is set to commence an extensive 2019 self-build campaign as it aims to engage with growing numbers of self-builders...
NatWest offers Esme Loans directly to its SME customers
NatWest will now offer Esme Loans products directly to its existing SME customers...
OSB appoints new NED
OneSavings Bank has announced that it has appointed Sarah Hedger as a non-executive director, with effect from 1st February...
Tandem Bank reaches 500,000 customers
Tandem has announced that it has reached 500,000 customers one year on from being granted a full banking licence...
Bank Leumi UK appoints new head
Bank Leumi (UK) has appointed Sarah Ryman (pictured above) as its new head of premier banking and liabilities...