Europe Begins Open Banking Era In Subdued Style

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The EU's second Payment Services Directive (PSD2) took effect on Saturday 13 January, bringing with it the start of Open Banking, however the prospect of a sudden revolution is likely to be thwarted by unresolved technical and regulatory issues and a lukewarm reception from consumers.

The central feature of the directive is the rule that banks must allow third parties, including digital startups and challenger banks, access to their customers' financial data including transaction history and spending patterns.

The rule has been seen as bringing an end to the bank's long-held grip on payment services and as a catalyst for a potential revolution in retail banking.

Fintechs and digital payment service providers will gain greater access to high street banks' consumers. However, these same banks will also be able to develop more innovative and wide-ranging payment services of their own via greater use of application programming interfaces (APIs).

But the likelihood of any overnight overhauls of the payments market has been downplayed by industry commentators that have pointed out the underlying complexity of the directive and the fact that many features of PSD2 will not come into effect until at least 2019. 

For example, the technical standards underpinning the directive will not be finalised until September 2019. "Consumers won't see a dramatic change," said Jeremy Light, Head of Accenture Payment Services. "But we do expect banks and retailers to develop products in the coming months."

However, says Light, the success of Open Banking will hinge on customers embracing the changes, not least because any sharing of financial data with third parties is dependant on consumers' consent.

A recent Accenture survey found that two thirds of consumers are reluctant to share their details with third party providers and "overwhelmingly trust their bank with financial information", said Light.

Others have highlighted consumers' fears around the security of their data in the open banking era, however this fear has also been downplayed by numerous industry figures including the providers of financial APIs - the source by which this data will be transmitted. 

"A lot of scare stories have been written about the security surrounding Open Banking," said Francesco Simoneschi, CEO and founder of API provider TrueLayer. "The reality is that for a company, app or service to use personal financial data through Open Banking, it needs to pass rigorous security and compliance procedures, including regulatory licensing."

The official start of Open Banking, has however led to an increase in the number of licensing arrangements for new players including UK-based Emma, which today announced its approval from the Financial Conduct Authority for its banking app which it intends to integrate with challenger banks such as Monzo and Revolut.

While the rate of adoption of new services among consumers is unknown, what is more certain is an increase in the number of new services that will be launched in the months to come as incumbent banks and their digital challengers vie for the upper hand in the Open Banking era.