On the 13th of January of 2018 came into force the PSD2 regulation which mandated banks and building societies to “open their software” to regulated Third Party Providers, allowing these TPPs to get access to customer financial data if consented by customers. In order to be compliant, these entities had to have available by the 14th of March of 2019 a testing environment that could be used by TPPs to start integrating with their software.
In the UK, the Competition and Markets Authority (CMA) set up the Open Banking Implementation Entity that would help derive the API specifications that banks and building societies would use to securely provide PSD2/Open Banking capabilities.
During the implementation period, banks have struggled to comply with the development of Open Banking capabilities due to the technological clash with their legacy systems, and the uncertainty/lack of direction of some of the articles of the PSD2 regulation. According to Business Insider Intelligence, 41% of the Europeans banks failed to meet the PSD2 deadline. Having worked in the last couple of years on PSD2 implementation I have witnessed those difficulties but also the incredible effort that has been put in place in order to as much as possible comply on time.
Has all this effort made by banks and building societies fulfilled Fintechs expectations? According to Tom Blomfield, the founder of Monzo, in an interview to The Telegraph, the expectations have not been met at all.
Looking at the current panorama, thousands of Fintechs have emerged in the last couple of years offering Open Banking capabilities for Account Aggregation and Payment Initiation.
Will customers trust this new regulated entities with all their financial information without receiving anything back for their advantage? In my humble opinion, most probably only a few will survive this disruptive initiative and they will have to be ingenious on their offering in order to captivate customers to share their financial data.
Will this be the end of banks and building societies as we know them? There is no straight-through answer however, the mindset will have to change and banks will have to rapidly adapt to this new Open Banking era. Partnerships with some of these newly regulated Fintechs can potentially speed up adoption and retention of the customer basis.
“The positive effect of Open Banking on innovation has been nil,” Mr Blomfield said. “I don’t see any businesses based on Open Banking in Europe whatsoever.”