The concept of open banking managed to get well established over the last couple of years, and even though there is still a long way to go, it’s already spreading globally. But there is still a big gap when it comes to regulations between Europe and the rest of the world.
The open banking revolution was ignited in Europe
It was back in October 2015 that the European Parliament adopted the revised Payment Services Directive, also known as PSD2. These new regulations arrived with the main goal to promote the use of innovative online payments through open banking, as well as the open access to customers’ financial data information.
By enforcing the development of regulated APIs (application programming interfaces) on banks, it started a revolution in the financial industry, allowing account information service providers (AISPs) and payment initiation service providers (PISPs) to easily ‘plug’ into customers accounts (with their consent), and provide a whole range of new services.
Those are only a few of the reasons why we can truly state that open banking was born and raised in Europe, still presenting itself as the main hub.
The Competition and Markets Authority was the responsible for the creation of Open Banking in the UK
Even after Brexit, the United Kingdom still follows most of the PSD2 regulations and recommendations, although with some slight amends. The UK has become one of the main hubs for open banking in Europe since the starting line, with the Competition and Markets Authority (CMA) mandating that the nine-biggest UK banks allow licensed startups direct access to their customers’ data.
This was enforced at the beginning of 2018, taking advantage of the systems and guidelines drafted by Open Banking Limited, a non-profit organisation created specifically for the task.
Who are the nine-biggest UK banks? (CMA 9)
- RBS (Royal Bank of Scotland)
- Bank of Ireland
- Allied Irish Bank
- Danske Bank
The Open banking community is growing by the day
After the enforcement of PSD2 on December 31, 2020, the adoption of open banking wasn’t as fast as many would expect. But after a slow start, the community has been picking up the pace and the growth in service providers and daily users of open banking services keeps setting records.
According to a recent report (February 17) by Open Banking Implementation Entity (OBIE), there are more than 5 million people in the UK using open banking services. Even though the UK is not a true reflection of the rest of Europe, it can give us a good perspective on the future.
“It took 10 months to grow the number of users from 1M to 2M in 2020. In contrast, it has taken just four months to grow from 4M to more than 5M, demonstrating the increasing appetite for consumers and small businesses to use open banking services to move, manage and make the most of their money”, OBIE
It’s also important to highlight that in a parallel growing curve we have as well an increase in coverage of third party providers, such as Nordigen, who work relentlessly to guarantee the wider coverage possible of banks in Europe.
This will keep bringing even more startups and developers to the open banking stage, helping to increase both innovation and variety of services available.
Is open banking different between the European Union and the UK?
Technically, after the UK withdrew from the European Union (and European Economic Area) on January 31, 2020, they didn’t have to keep abiding by the PSD2 legislation. Although, since they still need to maintain constant interactions with European financial institutions, they still follow these regulations.
On the other hand, it’s also important to highlight that since they are not obliged to follow PSD2 by the letter, it's expected that they will take the European legislation as a foundation to create their own, eventually.
Who’s responsible for regulating open banking in the UK?
Open Banking’s structure in the United Kingdom is well established and easy to understand. Open Banking Implementation Entity (OBIE) is the last step on the hierarchy, being a private body that is then overseen by the CMA, Financial Conduct Authority (FCA) and Her Majesty’s Treasury (HMT):
What are the main open banking standards in Europe?
As approached earlier in the article, the main foundation for open banking in Europe is the PSD2 regulation, but it’s not the only standards that need to be followed.
The European Commission has decided to endorse a few other important standards to complement the revised payment services directive, such as the Regulatory Technical Standards (RTS) and Berlin Group’s NextGenPSD2.
RTS are a set of technical compliance standards that, once endorsed by the European Commission, have to be met by all parties. They were drafted and implemented by the European Banking Authority and have the goal to establish minimum conditions that have to be met for businesses to be compliant with PSD2.
On the other hand, we have the NextGenPSD2 standards drafted by the Berlin Group, to smooth interactions between the different parties involved in payment processing.