Open Banking and PSD2 - a progress report

Open Banking and PSD2 - a progress report

We have now lived through one whole quarter of the EU’s Second Payment Services Directive (PSD2), otherwise known as Open Banking in the UK. On the plus side there have been no disasters, no bank has gone to the wall and no challenger bank has imploded upon entry into the market.

However, any progress report would highlight the fact that there is more work to be done in terms of developing some common industry standards for things like Open application programme interfaces (APIs) and guaranteed service levels.

While Open Banking may yet prove to be a game-changing initiative, it was never going to be an overnight revolution. That sound on 13 January 2018 was not the big bang, but the sound of a starting pistol for what will be a journey for at least the first 18 months.

A central feature of Open Banking is the need for banks to make customer data available to third parties – a significant undertaking with understandable security concerns that will take time to iron out fully. It will also involve a level of trust from customers that will have to be earned by banks and new financial services providers in order to gain material traction.

While financial inducements may help to persuade early movers, a demonstration that these new Open Banking services can provide value to consumers will foster more sustainable participation.

The UK took a measured approach to Open Banking, using the first three months as a managed rollout of the initiative, carried out by the Open Banking Implementation Entity. This process was completed in April and authorised and registered third parties are now free to offer their Open Banking services to customers.

HSBC has been one of the first UK banks to act and has recently launched its Connected Money app, offering customers a single place to see their various account information. Meanwhile in Belgium, KBS was the first bank to let its customers check their account balances with other financial institutions via its mobile app.

Could the open banking regulations be stirring up interest on beyond retail? Interestingly, there has also been some recent evidence of collaboration between banks and fintechs spreading to institutions more associated with the wholesale banking market. The Deutsche Borse and its post-trade services subsidiary Clearstream has announced a partnership with German fintech Figo and Luxembourg-based regtech Finologee in order to develop a fintech acceleration platform offering access to the exchange’s market and reference data.

Yet one issue that may help to accelerate the launch of new services, collaboration between banks and fintechs, and more adoption from consumers would be the development of API standards. The PSD2 specifications for APIs, based on the REST technical standard, are low on prescription and leave plenty of room for different interpretations to exist. 

Just as with the initial rollout, the UK’s Open Banking body has attempted to address this with the release of its Open API specifications and data standards, designed to give developers a more specific set of guidelines for building their own APIs. And similar consortiums in France (Stet) and Germany (The Berlin Group) are attempting to do the same with their own standards.

However, all these efforts will be of limited use if there is no commonality between different European markets. What is really needed is a set of industry-wide common standards in order to develop a library of open APIs available to all and accessible via a common platform.

Our goal at Finastra is to help support and accelerate this process. A platform-based approach, underpinned by an extensive ecosystem of participants that all adhere to common standards, is crucial in enabling banks to quickly access, integrate and deploy new apps from Fintechs and developers.

Such an approach will create the kind of collaborative development ecosystem that Open Banking is designed to encourage. Clearly, it’s an evolutionary process and will take time.

Mitesh Soni is a Senior Director of Innovation and Fintech at Finastra, the world’s third largest financial technology company. He is a global banking industry expert with more than 20 years’ experience driving business transformation, digital disruption, and business model redefinition. He has spent a number of years in the risk management and trading technologies space holding a Financial Risk Manager qualification from the Global Association of Risk Managers. Previous experience includes roles at HSBC, Deutsche Bank, Morgan Stanley and many others. He is also an investor, advisor and Fintech mentor with an active interest in building fintech community ecosystems. He is passionate about digital transformation, innovation and disruption through partnerships and creative investment strategies.

Looking to learn more about
our platform or apps?