The Situation of Open Banking: Examining Its Progress Six Years After PSD2

Open banking has come a long way since its inception six years ago, mandated by PSD2. However, as we assess its current state, industry experts provide insights into what lies ahead in 2024 and beyond for this evolving ecosystem, according to The Fintech Times.

Open banking was introduced in the UK in 2017 following the Competition and Markets Authority’s (CMA) investigation into retail banking, which revealed the dominance of large banks. The CMA mandated collaboration among the nine largest UK banks, known as the CMA9, to securely share consumers’ banking data with trusted third parties.

Shortly after, in January 2018, the revised Payment Services Directive (PSD2) extended this requirement to all banks and financial institutions across the European Union.

These initiatives aimed to boost innovation, competition, and security in payments and consumer data protection, setting the stage for open banking’s growth.

While open banking has achieved significant milestones, questions persist about whether it has reached its full potential. Hans Tesselaar, Executive Director at the Banking Industry Architecture Network (BIAN), believes that more work is needed. He highlights that open banking’s development has primarily been driven by regulators rather than consumer demand, resulting in minor progress.

Tesselaar emphasizes the importance of educating consumers about the benefits and security of open banking. Encouraging adoption, as seen in successful global examples like Singapore, is key.

Stephen Wright, Head of Corporate and Regulatory APIs at NatWest, emphasizes the need for a compelling user experience and expanded use cases to drive open banking adoption. Government clarity on the new implementation entity and the commercial model is essential to foster cross-industry collaboration and market investment.

James Hickman, CCO of Ecospend, points out that regulatory frameworks lag behind the rapid growth of open banking. Clarity on consumer protection, especially regarding liability for open banking transactions, is crucial.

Tom Burton, Director of External Affairs and Public Policy at payment processor GoCardless, believes that open banking payments technology still has significant potential for growth. He envisions open banking becoming the primary alternative to card payments but acknowledges that it will take time to achieve ubiquity.

Despite the challenges, 2024 could be a pivotal year for open banking. Tom Burton suggests that household names adopting open banking and progress in Variable Recurring Payments (VRPs) could lead to broader acceptance.

Adnan Chowdhury, UK Policy Lead at Wise, highlights Wise’s success in adopting open banking and views it as a feasible, low-cost alternative to traditional cards. However, he notes that progress in the EU has been slower due to the lack of a single standard. Globally, open banking faces varying levels of adoption and the challenge of making different setups interoperable.

While open banking has made substantial progress, it still has room to grow and faces challenges in meeting its ambitious goals. Education, regulatory clarity, and improved user experiences will be crucial in realizing its full potential.

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