On the road to open banking financial institutions have been issued a set of rules to give consumers full control of their financial data.
This was considered a significant win for open banking as it facilitates data portability and enables consumers to easily switch financial institutions (and even non-financials), the original goal for open banking initiatives globally.
With this set of rules as guidance, the US may start to adopt open banking standards and when that happens, traditional banks will need to ensure that they’re in compliance.
In the UK, banks learned the hard way as they struggled to catch up with the regulation and become compliant – with a lack of technical knowledge which led to expensive programs on the back of the European Payment Services Directive 2 (PSD2).
The EU pioneered open banking with the advent of PSD2, which is a regulation for electronic payment services which all member countries must follow. Proposed in 2013 as an amendment to the Payment Services Directive (PSD), the goal of PSD2 was to make payments in Europe more secure through open APIs, while boosting innovation and assisting banking institutions to adapt to new technologies.
PSD2 compliance enables financial institutions to create new ecosystems and build regulated BaaS (Banking as a Service) platforms. With PSD2 in place, the EU positioned itself as the global leader for open banking. Looking forward, the EU is doubling down on these standards with a regulation on instant payments as a key new initiative in 2022.
Instant payments are electronic retail payments that are processed in real time where the funds are made available immediately for use by the recipient.
US financial enterprises that continue doing business globally will face increasing pressure to comply with relevant regulatory requirements. The UK has also made great strides in standardizing API models and frameworks to further enhance and encourage the industry to reform.
From these innovations, countries like Australia have leapfrogged and started to broaden the reach of the legislation, touching other areas of data sharing from identity to commerce… it’s exciting stuff for those of us who believe data is the key. So how can countries outside of Europe learn from this?