The evolution of open banking in the UK, EU, Australia, and US

Open banking still has the potential to transform global financial services and how people interact with their finances, but it’s still not there yet. The UK, European Union (EU), Australia and US are all charting their own unique course to implementing open banking in their respective region. Across the markets, this leads to differences in how financial information is shared with other banks, and personalised products and services are offered. 

The UK has pioneered open banking so new developments are of real international interest. However, there is still a way to go to see open banking being more widely accepted and really shape society’s relationship with money.

Recently, the Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR) have made significant advancements in open banking. They outlined how open banking will be expanded in the UK for use in e-commerce and variable recurring payments. Notably, they established an independent entity to oversee these payments, aiming to enhance customer control over regular transactions and to foster greater competition. Even with the PSR being closed out, the FCA will continue to push this area as it is in the interests of customers. Arguably, they’ve not seen enough benefits yet.

And it’s a very different story in other countries, so how does open banking differ in other regions?

Taking a wider view

Similar to the UK, the European Union (EU) has mandated banks to share customer data with third party providers through the revised Payment Services Directive (PSD2). This also aims to promote innovation and competition. It is important to note that the adoption of open banking varies across member states due to differing levels of standardisation and implementation. 

Australia is pushing the boundaries in some respects by integrating open banking principles across various industries through a cross-industry data approach. Here, the open banking concept is applied and is extended to include industries like telecommunications and energy. This expansion is driven by the country’s Consumer Data Right (CDR), which empowers customers to have greater control over their data across various industries. This makes sense and the benefit to consumers is not just control but also knowing how their data is being shared to, for example, enable a bank to use their data to see if they could get a better deal on their energy bill.

Compared to the UK, EU and Australia, the US is lagging behind in open banking. The country has taken steps to implement this, but can still go further to match the progress made in other countries. So far in the US, the Consumer Financial Protection Bureau (CFPB) has finalised rules that enable customers to transfer their financial data between financial services institutions. However, this initiative has encountered resistance from major banks, due to concerns over data security. And with the current administration view on reducing intervention in markets it is highly  unlikely that any progress will be made.

Driving successful implementation of open banking globally

As open banking evolves, it is crucial for financial organisations to balance innovation with protecting their own and their customers’ security. By utilising application programming interfaces (API), open banking attempts to  facilitate the secure exchange of financial information between banks.  This needs to be centred around the product and service benefits from sharing information. For example, improved credit and lending decisions due to access to current main account and credit card expense and income data.

However, this also increases the risk of data breaches as the attack surface for threat actors is increased due to more potential points of entry. To safeguard the bank itself and their customers, all information must be encrypted, so data remains confidential. As well as this, it is vital for all parties involved to comply with data regulation in their region, such as General Data Protection Regulation (GDPR) in the UK and EU.

As open banking continues to evolve, each country is on their own path, but that does not mean that they cannot learn from each other to refine their frameworks. Despite the diverse approaches, all countries should strive to enhance the connection of financial services, drive innovation, competition between organisations and increase customer control over their finances. Open banking presents a significant opportunity for innovation and growth in the financial services industry. To really unlock the full potential, and in fact customer demand on data being exchanged, there has to be more focus on the end customer benefits. Making that obvious and transparent will drive more adoption.