The impact of Brexit
With Brexit on the horizon, many businesses are concerned about maintaining the seamless digital experience the modern consumer seeks. Going forwards, UK organisations will lose their ‘passporting’ rights to do business across the EU, with firms in the EU suffering similar barriers when looking to operate in the UK. As a result, many businesses have set up bases in the EU. Meanwhile, firms are also applying to the FCA for temporary permission to operate in the UK.
In a move to reduce the disruption to open banking services post-Brexit, the FCA has announced that third-party providers (TPPs) will be able to use an alternative to eIDAS certificates to access customer account information from account providers, or to initiate payments, since eIDAS certificates of UK TPPs will be revoked when the transition period ends on December 31. This gives TPPs a compliant way to access customer information and makes any changes as the UK exits the EU as smooth as possible.
Companies are needing to audit their suppliers, including payment service providers, to ensure they have every required license to operate in the EU, and stringent contingency plans. The creation of separate EU entities is a way many businesses are ensuring they can operate safely in the EU regardless of a Brexit deal.
Alignment with EU regulations
The need for open banking will only grow after Brexit, given that the open banking agenda will never be fulfilled by incumbent banks. Open banking enables banking services to be digitised in a way that provides consumers with more choice than ever before, opening up the market to new entrants who can provide products and services that banking incumbents do not.
It is also clear that regulatory intervention to facilitate competition in the financial services market is necessary. The EU Payment Services Directive 2 (PSD2), which was introduced in September 2018, brought open banking requirements into play across the EU and went beyond the Retail Markets Investigation Order 2017 (CMA Order) brought in in the UK mandating that the biggest banks provide customers with the ability to share data with authorised APIs. The CMA Order showed how regulation can make banks modernise their services, but PSD2 provides better consumer choice and protection by opening up payments to third parties so that customers can access a range of options on how to pay and who to share data with.
PSD2 will therefore likely be a key mechanism for the UK financial services industry if it is to remain competitive in Europe and globally. This means the UK will need to comply with EU regulations in order to safeguard its position as a leader in open banking and enable the sector to continue to grow. As such, the UK is likely to accommodate EU regulation where it meets the needs of its own internal market. GDPR, for example, will continue to be applicable in both the UK and the EU so that businesses can protect and process personal data effectively. It is likely that the UK will utilise the pre-existing GDPR as a blueprint for its own but attuned to the separate needs of the country, and this is a pattern that is likely to be applied to open banking.
The outlook for UK open banking
Regardless of the UK’s relationship to the EU, many argue that the UK Open Banking standard is broader than the EU’s PSD2, and could therefore be used as a blueprint for other countries globally.
While the road ahead is not clear, it is evident is that open banking technology will continue to drive innovation and competition within the industry, providing the consumer with more convenience and choice.
The UK must prioritise ways to foster economic growth, and open banking will therefore have a major role to play here. Once the UK has agreed technical standards and governance, open banking in the country could provide a competitive advantage through open APIs and help the fintech sector to enjoy continued growth in 2021 and beyond.
The route forward for businesses
Consumers increasingly demand efficiency and want services and products on-demand, which means the advantages afforded by open banking provide a wealth of opportunities for creating a slick customer experience. For example, cross-border payments, innovation around APIs and automation are all allowing businesses to make complex payments processes easier and faster, and to scale with ease as a result.
Payment solutions like ECOMMPAY’s, for example, leverage open banking technology to allow consumers to initiate payments to merchants without the need for debit or credit card transactions, and are key to facilitating efficient and simple payments within and across borders, customised by localised requirements.
Businesses have been preparing for Brexit for years now, and as such, as long as companies have put in place appropriate contingency plans and continue to make smart investments in their payment infrastructure, they are well positioned for long term economic success.