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.