3 min read
The concept of open banking managed to get well established over the last few years, and even though there is still a long way to go, it’s already spreading globally. But there is still a big gap when it comes to regulations between Europe and the rest of the world.
The open banking revolution was ignited in Europe
Back in October 2015, the European Parliament adopted the revised Payment Services Directive, also known as PSD2. These new regulations were implemented with the goal of promoting theuse of innovative online payments through open banking, as well as the open access to customers’ financial data information.
By enforcing banks to develop regulated APIs (application programming interfaces), it started a revolution in the financial industry. Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs) could now easily ‘plug’ into customers accounts (with their consent), and provide a whole range of new products and services.
As soon as both customers andthird-party providers realised the giant potential of open banking, it was just a matter of time until adoption picked up the pace and spread all over the old continent.
Those are only a few of the reasons why we can truly state that open banking was born and raised in Europe, still presenting itself as the main hub to this day.
The Competition and Markets Authority was the responsible for the creation of Open Banking in the UK
Even after Brexit, the United Kingdom still follows most of the PSD2 regulations and recommendations, although with some slight amends. The UK became one of the main hubs for open banking in Europe from the very beginning, with the Competition and Markets Authority (CMA) mandating that the nine-biggest UK banks provide licensed startups direct access to their customers’ data.
This was enforced at the beginning of 2018, taking advantage of the systems and guidelines drafted by Open Banking Limited, a non-profit organisation created specifically for the task.
Who are the nine-biggest UK banks? (CMA 9)
RBS (Royal Bank of Scotland)
Bank of Ireland
Allied Irish Bank
The Open banking community is growing by the day
After the enforcement of PSD2 on December 31, 2020, the adoption of open banking wasn’t as fast as many would expect. But after a slow start, the community has been picking up the pace and the growth in service providers and daily users of open banking services keeps setting records.
According to a report by Open Banking Implementation Entity (OBIE), there are more than 7 million people in the UK using open banking services.
Even though the UK is not a true reflection of the rest of Europe, it can give us a good perspective on the future.
It’s also important to highlight that in a parallel growing curve, we can verify an increase in coverage by third-party providers, who work relentlessly to guarantee the wider coverage possible of banks in Europe.
This will keep bringing even more startups and developers to the open banking stage, helping increase both innovation and variety of services available.
Is open banking different between the European Union and the UK?
Technically, after the UK withdrew from the European Union (and European Economic Area) on January 31, 2020, they didn’t have to keep abiding by the PSD2 legislation.
Despite this, since they still need to maintain constant interactions with European financial institutions, they still follow these regulations.
On the other hand, it’s also important to highlight that since they are not obliged to follow PSD2 by the letter, it's expected that they will take the European legislation as a foundation to create their own, eventually.
Who’s responsible for regulating open banking in the UK?
Open Banking’s structure in the United Kingdom is well established and easy to understand.
Open Banking Implementation Entity (OBIE) is the last step in the hierarchy — a private body that is overseen by the CMA, Financial Conduct Authority (FCA) and Her Majesty’s Treasury (HMT):
What are the main open banking standards in Europe?
The main foundation for open banking in Europe is the PSD2 regulation, but it’s not the only standard that needs to be followed.
The European Commission has decided to endorse a few other important standards to complement the revised Payment Services Directive, such as the Regulatory Technical Standards (RTS) and Berlin Group’s NextGenPSD2.
RTS are a set of technical compliance standards that, once endorsed by the European Commission, have to be met by all parties. They were drafted and implemented by the European Banking Authority and have the goal to establish minimum conditions that have to be met for businesses to be compliant with PSD2.
On the other hand, we have the NextGenPSD2 standards drafted by the Berlin Group, to smooth interactions between the different parties involved in payment processing.