In every corner of the world, financial regulators are taking steps to advance open banking, with fresh regulations and frameworks recently announced in the EU, UK, US, and Australia. However, each regulator is taking a different approach, tackling region-specific issues to advance payments infrastructure and improve the consumer experience.
Both in the EU and across the channel, European regulators were at the forefront of real-world open banking implementation. However, both markets are not resting on their laurels, striving to build on their strong lead and cement themselves as the home of open banking innovation. The EU Commission's recent proposed legislation PSR1, replacing EU directive PSD2, focuses on improving financial API performance, placing an increased focus on the standardisation of financial data throughout payments infrastructure. This effort begins with enhanced data collection, with the commission inserting article ”Prohibited obstacles to data access’, outlawing a range of barriers to data collection utilised by financial institutions to gate keep customer information.
PSR1’s increased flow of payments data will be accessible by improved APIs, with new guidelines setting minimum data requirements for API functionality whilst also improving performance. This fresh approach requires financial institutions to meet a minimum latency and downtime, reducing development costs for fintechs integrating with the APIs and increasing their performance. The EU Commission’s directive PSD3 focuses on a different objective, standardising the licensing and regulatory frameworks of all 27 members. This is an exciting move for fintechs and financial institutions, vastly reducing the cost of providing their services in multiple EU member states. The new regulation also implements common-sense improvements, including streamlined authentication processes, standardising the payment settlement layer.
The EU’s PSR1 and PSD3 will deliver large advancements in how fintechs build and licence their products, reducing costs and increasing potential functionality, but real concerns remain regarding fraud prevention and data security. The new regulations increase access to financial data and performance data and supply frameworks for protecting this data, but leave the fintech market to independently build the necessary fraud prevention tools, leaving the door open for inadequate consumer protection.
In addition, the EU is still lagging behind the UK’s advanced payments infrastructure. The EU’s PSR1, unlikely to come into action until 2026, will create more consistent experiences with API performance improvements and online banking streamlining; these features were implemented in the UK’s first round of open banking infrastructure. The UK’s new open banking regulator the Joint Regulatory Oversight Committee (JROC) is taking a targeted approach to new open banking regulation, placing 2023 deadlines for Virtual Recurring Payments, viewed as the next stage of payments usability.
The US’ Federal Reserve finally made its first foray into open banking in July, launching FedNow to bring instant settlement and near-zero fees to American consumers. Despite joining a fragmented network of payment schemes including formidable competitor Real-Time Payments (RTP), FedNow is a commitment to opening up banking infrastructure in the US and signals that the Federal Reserve will continue innovation in the industry. The US' approach is one to watch moving forward - in contrast to European regulators, the Federal Reserve is not dictated to by industry and will plot a more considered and less urgent course.
Australia’s implementation of open-banking infrastructure is a contrast to the US’ approach, drawing inspiration from the UK’s open banking regulations to launch the Consumer Data Right Act in 2019. The regulation introduced extensive data-focused frameworks, enforcing standardisation of financial and consumer data, whilst also driving forward API-first interfaces. The approach is showing early signs of success, with March’s Australian open banking ecosystem map detailing 95 active data holders and 99.25% consumer bank account coverage. However, Australia is still building an open banking ecosystem, with startups yet to make a dent with access to a wealth of data.
This article originally appeared at: finextra.com
Banked Ltd is authorised and regulated by the UK Financial Conduct Authority
Floor 4, 8—14 Meard Street, London, W1F 0EQ, UK
Company number 11047186 : Firm Reference Number 816944 : +44 (0) 20 8090 2747
© Banked : 2023