The Race to Open Banking is underway

As the dust continues to settle after the momentous decision by UK to leave the EU, the implications in terms of EU regulation are pretty clear, with the FCA stating whilst the UK remains in the EU (for at least 2 years after invoking the now well know Article 50 of the Lisbon Treaty) then planned initiatives such as PSD2 remain in place.

At the recent PSD2 Discovery Day event hosted by Payments UK where the topic of open banking was discussed, a highly enlightening presentation was made by lawyer Paul Anning of Osborne Clarke. He outlined some of the key differences between the UK Open Banking initiative which at a minimum impacts the retail banking arms of the 9 large UK banks (Barclays, HSBC, Nationwide, Santander, Royal Bank of Scotland, Lloyds Banking Group, Danske, Bank of Ireland and Allied Irish Bank) and the 2nd drop of the European Payment Services Directive or PSD2, impacting 100’s of European Financial Institutions.

Though both of these initiatives drive forward some fundamental changes to traditional banking practice, in particular their opening up of customer accounts via Open APIs, there is some clear difference in scope between the 2 programmes.  It’s fair to say that some details on both need to ironed out.

For the UK Open banking initiative (to be implemented by end of Q1 2017), Paul highlighted in particular the confusion over the scope of “write access” to an account. It certainly includes payment initiation services as in PSD2 but could this include access to other customer account information.

From the PSD2 perspective, the ECB is imminently due to publish their RTS (Regulatory Technical Standards) document in August which may offer some of this detail; however many seasoned observers are only expecting that the RTS this may be no more than a framework for the implementation rather than offering specific rules on the APIs that will need to be implemented. This will potentially lead to fragmentation of offerings by banks, something the community is keen to avoid. Indeed a call to action was made at the Payments UK meeting for the community to act as one with the aim of harmonising the rollout of Open Banking services across the UK and Europe.

What is clear is that as these open APIs are designed to service third party providers with secure authorised access to a customer’s account, the integration with back office applications and data sources will need to be managed carefully.  Additionally, with new startup banks offering wider services by API, the larger established banks may begin to look at creating a wider set of services via API other than just the mandated payment initiation or account transaction history, e.g. financial planning services, all of which will require careful consideration of how these APIs connect up to existing banking systems.

With the CMA now issuing its final report into the UK retail banking market, essentially cementing the proposed Open Banking initiative, the march towards the “Uber”isation of consumer banking has begun.