A few months into new Open Banking legislation in Europe and the UK, we ask what the rest of the world are planning to do in that regard. Will they follow suit?
A slow start by all accounts across Europe, with only a small handful of banks going 'all-in' from the onset.
With increased data security measures - GDPR - coming into force imminently, and fewer risks on face value for banks, we are likely to see things pick up speed before too long.
Have a look at what's happening around the globe!
Streets ahead of the rest of the world, The United Kingdom’s Competition and Markets Authority adopted a staged approach to Open Banking to allow for a smoother and lower-risk implementation of a single API standard earlier this year. Stage 1 involved data exchange only, with payments/ transactions to be added in 2019. Only a handful of banks have managed to comply with Open Banking deadlines. The challenge lies in establishing secure APIs to sustain the expected output.
- Leading the move into Open Banking worldwide
- Staged, lower-risk approach (began with data exchange only, payments to follow in 2019)
- Many banks ‘missed’ the deadline and have been granted extensions
PSD2 went live in January 2018. The European Council passed the Revised Payment Services Directive (PSD2) in November 2015, enacting a framework for open banking APIs to develop over a multi-year period. Their implementation was more of a blanket approach, which has meant significant delays in the early stages. Only 11 EU states have transferred PSD2 into local regulation.
PSD2 legislation became effective in January 2018. The use of Strong Customer Authentication security measures will become mandatory 18 months after the entry into force of the RTS (Regulatory Technical Standards), i.e. once the RTS is published in the Official Journal of the EU, scheduled for September, 2019, allowing payment service providers, including banks, sufficient time to adapt their security systems to the increased security requirements defined in PSD2. This has also meant that many banks are delaying due to a lack of security at this stage.
- Launched in January 2018
- Blanket PSD2 adoption; slower than expected.
- Security measures not yet in place. Banks delaying as a result.
Australia’s 4 largest banks -Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Westpac and The Australia and New Zealand Banking Group (ANZ) - which hold around 95% of market share, are set to enable open API access for customers this year. The national government budgeted AUS$1.2 million for the Treasury in 2017-8 to assess what the open API scheme should look like.
- 4 largest banks with 95% market share, will launch open APIs this year. (images of 4 banks)
- The focus here is still very much on immediate payments but awareness on Open Banking and APIs increases among Australian banks
South Korea was the first country to launch a common API infrastructure across financial institutions back in 2016. Singapore has recently been leading the way in open banking revolution. The Monetary Authority of Singapore (MAS) has been encouraging financial institutions to develop and share their APIs openly, so that they can work with other service providers to give customers a richer and more seamless experience. In other major economies like Japan and India, leading companies have taken steps to enable third-party data sharing in the absence of regulation. Asian mobile payment services such as WeChat and AliPay are the region’s data-sharing pioneers accounting for 93 per cent of China’s mobile payment segment.
- Asia’s financial hubs, Hong Kong and Singapore are leading the region’s Open Banking digital revolution.
- 2FA (2-Factor Authentication) being implemented to combat massive QR-code fraud in China.
While European banks have been obliged by law to move into the world of open banking, U.S. banks appear to have recognized the commercial imperative and are making the shift with approval, rather than guidance, from the government. Regulators have decided that instead of imposing, to encourage innovation in financial services and observe how the market unfolds. API standards were published earlier in 2018 by the FS-ISAC that fulfil many of the the same functions as those mandated under PSD2. Banks are under no obligation to implement it but wide adoption is expected due to market pressure.
- In the U.S. attitude has been that it should be the market, and not the government, that decides how things work. That banks should be free to allow or deny access to whichever apps they like.
- For the numerous smaller banks in the U.S., which typically outsource much of their technical process, a move to open banking depends on their IT providers.
As for Latin America, Mexico stands out after passing the FinTech law, which gives fintech companies greater regulatory certainty around issues such as crowdfunding, payment methods and cryptocurrencies. It lays the ground for Mexico to introduce an open banking regime. It will require financial institutions to provide authorised third-party service providers with open access to customer data.
Discussions on implementation of an API standard designed by the Open Data Institute are in progress. The CNBV has six months to issue the first set of secondary rules for the sector, with subsequent provisions set to follow after 18 months and 24 months.
- The remaining LatAm countries, will make a qualitative leap in the short term, and define their regulatory framework which will develop innovation throughout the region and allow the financial sector to evolve.
- In Mexico, financial institutions will be required to provide authorised third parties with open access to customer account data, making Mexico the first country in the region to implement an open banking regime.
- FinTech Mexico estimates that open banking could generate economic benefit of up to $25M a year to families and companies in interest savings due to increased competition.
As one of the most mobile-first continents given the significant unbanked population, open banking efforts have been heavily focused on providing alternative mobile solutions (e.g M-Shwari, M-Pesa, Tala). Open Banking is the opportunity Africa needed to modernize their banking efforts, reaching the wider population.
- Open Banking particularly beneficial in unbanked areas of Africa
- Telecom companies act as a vehicle for open APIs
The financial world unanimously shares the opinion that the customer should be in control of their own data, and that this move will be positive, create opportunity and new sources of revenue. The next step is focusing on how to transition into third-party data exchange. The UK and Europe bravely took the lead, with other continents closely bringing up the rear, benefiting from the learnings of those that went before them.
ABOUT THE AUTHORS
CONTENT - AOIFE CREAN
Aoife is an experienced copywriter and translator in English, Spanish and Catalan across several sectors. Passionate about all things language-related and a whiz with words, she gives voice to the Strands values through all manner of articles, blog posts and whitepapers.
DESIGN: VAIDA PAKULYTE
Vaida Pakulyte is a digital marketing manager at Strands. As an outcome focused online marketer, Vaida is interested in online banking and specializes in creating content that sticks.