Compliance or Opportunity? EU Institutions Grapple With Open Banking Implications
The passage of the European Banking Authority's Second Payment Services Directive (PSD2) has both challenged the banking community and presented a wealth of opportunities. PSD2 is first a compliance initiative, but its ultimate promise is to create a more consumer-centric Open Banking environment that also enables new and existing providers to engage with their customers.
Fiserv recently released FinKit™ for Open Banking, a solution designed to help financial institutions get and stay compliant while building a platform equipped for long-term innovation.
We talked to Nick White, vice president, product and marketing, Digital Banking Group, Fiserv, to get a better understanding of how the process has gone, where it's headed and how banks can maximize the opportunity.
We're nearly three months past the deadline for the nine largest U.K. account providers (CMA9) to implement the Open Banking standard as required by the Open Banking Implementation Entity. What's your perception of the progress so far?
The best way to judge progress is to go back to the original goals of Open Banking and the PSD2 regulation that requires it: to encourage competition and stimulate innovation while providing security to customers. Through Open Banking, customers eventually will see opportunities such as account aggregation, faster application processes for financial services and products, and direct-to-account payments and balances in retail.
It's too soon to say if the objectives of PSD2 and Open Banking will be achieved. But what we do know is that getting compliant for day one has not been trivial for the CMA9. Like any large project, slippage did happen, and some of the banks had to seek extensions.
The level of effort required to get to compliance on the first day has been more than anyone expected. Clearly, achieving Open Banking can't be treated like a special project completed by brute force because that approach is unsustainable beyond day one.
I don't think anyone expected third-party providers to adopt Open Banking opportunities overnight. However, we are all eagerly awaiting more news on how many of those providers there are and what the most popular use cases are going to be. I'm expecting a slow start followed by an acceleration of activity once the first few third-party providers get going.
What are some of the lessons learned so far?
The main lesson will come from the implementation of Open Banking by the CMA9 and how that process can be applied by others seeking to be PSD2 compliant.
It's not good enough to just throw people and money at the project, only to realize that day one is actually the starting line, not the finish line. If banks direct massive resources toward building a solution from the ground up, they get to the starting line and realize every change from that point on will require a similar amount of effort.
Instead, banks should consider leveraging technology and building partnerships that offer fully managed services. That means tools and solutions for getting compliant, staying compliant, consumer consent, third-party provider authentication and innovation development that accelerates the pace of change and reduces the cost. That frees up the bank to focus on maximizing the massive opportunity Open Banking presents.
Where do you see the ideal operating model going from here?
Banks will be looking for efficiencies, savings and partners that can help them deal with a lot of the unknowns regarding the PSD2 road map, unknown third-party providers and customer adoption. It's also a matter of learning from those who went before them.
The first adopters – the CMA9 – were the early movers who had all the pain of the brute-force approach. Now, they will likely seek more intuitive, forward-looking solutions.
The next phase includes a much larger group of financial services providers that are targeting similar outcomes to those set before CMA9. Everyone must be compliant, but the larger group must show they have solutions this year that they can implement next year. They have an advantage because they can take cues from CMA9 banks and choose a platform, a process and a partner that minimize the cost of change.
It's in everyone's best interest to prove this regulation is working. That requires banks, regulators and the fintech community to deliver on the PSD2 standards on time, engage third-party providers and the developer community that will leverage the capabilities to drive competition and innovation, and collaborate on consumer awareness campaigns to build understanding and trust.
What recommendations would you offer to financial institutions at this point?
The most important recommendation is to free up resources to focus on turning Open Banking into an opportunity.
Partnering with someone who has the tools, platforms, people and processes can reduce the cost of getting and staying compliant and help banks start creating the innovations that will leverage Open Banking.
It's not just about what's happening now. Rather, it's about seeing the opportunity on the horizon and capitalizing on it to enhance consumers' experiences and meet their expectations every step of the way.