Open banking may not have transformed the industry yet, but key developments on the horizon in 2019 could accelerate progress.
January 13th 2018 marked a significant date for the financial services industry, as open banking was officially launched in the UK and the revised Payment Services Directive (PSD2) came into force in the EU.
Industry commentators and analysts have offered many insights into the significance of these developments, not only in European markets, but around the world.
As we approach the end of 2018, has open banking had the impact many were expecting?
Just the first chapter in the revolution?
There have been some questions raised about the impact of open banking so far, and whether it will prove to be the game-changing milestone some commentators suggested.
Less than a quarter of people in the UK have heard of it and only nine percent have used open banking services, according to a survey by experience design and technology firm Splendid Unlimited.
Paul Bishop, founder of the company, said open banking service providers have more work to do to build trust, promote the benefits of their products, and alleviate privacy and security concerns.
He added: “These findings highlight a number of key challenges open banking service providers must now address and offer key lessons for the effective and successful rollout of other new technology-driven service innovations… both in the financial services sector and beyond.”
However, considering the scale of some of the changes underway, it’s clear it will take time for retail banking providers and customers to really feel the effects of open banking.
This is particularly true in the EU, a multinational bloc made up of dozens of distinct countries, where there is huge variety in financial systems and, as yet, limited implementation of open APIs, the key technology required for open banking and data sharing to work.
In the UK, progress has been quicker thanks to a mandate from the Competition and Markets Authority for banks to implement APIs, but open banking is still very much a work in progress.
Imran Gulamhuseinwala, global head of fintech at EY and open banking implementation trustee, told the recent LendIt Fintech Europe conference the 2018 launch was only “the first chapter in the revolution.”
“Ensuring that all banks work together is possible, but it is just the starting gun,” he said.
What can the industry expect in 2019?
Open banking certainly has the potential to have a transformative impact on the financial services industry, and 2019 could prove to be a critical year in terms of the availability of new products, customer adoption and regulatory milestones.
To some extent, the onus is on fintechs and third-party providers to begin rolling out more products and services that utilize the provisions of open banking and leverage open APIs. They need to demonstrate how these services benefit customers and provide assurances around security and privacy.
September 2019 could prove to be a particularly significant point in the evolution of open banking, when the security measures outlined in the PSD2 regulatory technical standards come into effect. One of the consequences of this is that third parties will no longer be able to access customer data through ‘screen scraping’, which involves using the individual’s security credentials.
This means banks will need to share data via open APIs, which could help to accelerate the development and deployment of these technologies.
Increased adoption of APIs will make a big contribution to the range of services available under open banking and PSD2. As well as payment initiation and account information services, APIs can be put to use in areas such as small business credit scoring.
It’s also possible the industry will see an increase in API access functions designed to address the problem of inconsistency in APIs across Europe. Third parties could use these services to take some of the hard work out of connecting with the various APIs being used by larger banks.
Taking all factors into account, it’s no big surprise that the implementation of open banking has been a fairly slow and gradual process. This will continue to be the case over the coming months, but with some key regulatory developments on the horizon, 2019 could prove to be a critical year.