Today's editor's picks looks at the Open Banking picture: how the industry is currently managing the initative, how they are reacting to PSD2's fallout and what provisions they are taking for a future driven by Open Banking.
Barclays has announced a new strategic partnership with PayPal in the UK and US that is designed to enable customers to manage and use respective accounts together with greater ease, for the first time.
It suggests a move with serious industry implications.
Commenting on the partnership in an announcement, Ashok Vaswani, Barclays UK CEO, said “Barclays is becoming a digital company and I believe this strategic partnership with PayPal will provide the first of many new developments in which we join up with partners to enhance digital journeys.”
But Vaswani’s words downplay how significant this partnership is.
The introduction of the Payment Services Directive 2 (PSD2) in Europe at the beginning of 2018 was the latest step on the region’s journey towards competitively fair, digital banking. With the introduction of the legislation, incumbent banks are now legally obliged to open their customer data (with that customer’s permission) to registered and approved third parties, who can then make use of this customer data to offer additional products and services to those of the bank via banking APIs.
The world of consumer banking is becoming more democratic, as the old banking powers begin to lose their grip and their monopolies.
The latest Open Banking regulations have signalled a subtle shift in the world of consumer banking. New competitors are being allowed to compete in a marketplace long dominated by a select few financial giants.
A lack of clarity over the potential products and services spawning from the open banking revolution will make it difficult for the industry to prepare for how the market will change.
“I don’t think there’s anyone that can tell you what kind of services will be delivered off the back of these APIs,” says Nick White, vice president, product and marketing, digital banking group, Fiserv. “What the banks have got to be fit for is that type of operating model that allows them to deal with the unknowns.”
White says that banks will need to reappraise internal processes, and widespread internal reforms are likely as companies attempt to change their approach to how they view their APIs.
When Tom Blomfield, CEO of Monzo, told bobsguide: “If we do our job right, we’ll make some of the high street banks extinct”, it sounded like a gutsy gauntlet to throw.
Similar sentiment can be found with the likes of other challengers in the retail banking sphere: Atom, Starling, Revolut and Metro Bank are all looking to shake-up the banking landscape. But the UK’s retail banking sector has long been a hypercompetitive market, and established players have recently been shedding their restrictive legacy systems and creating agile new innovation departments, such as Barclays’ Open Innovation incubator on Silicon Roundabout.
That said, the next few years could provide a window of opportunity for the challengers.
For those in the industry PSD2 has become a familiar acronym. In simple terms, the EU directive puts ownership of financial data back in the hands of the consumer.
For consumers, who are only now waking up to the implications of this new directive, there’s significant confusion around the new rules and what they mean for the way they manage their finances.
This is hardly surprising. PSD2 and Open Banking have been hitting the headlines in the wider media but much of the coverage of the regulation has focused on its potential pitfalls.