Open banking API vs PSD2: the UK is taking the lead again!


The conclusions of the UK’s Open Banking Working Group’s recently released report (1) confirm that once again the UK is a step ahead of its European neighbours. The report’s call for an open banking standard and an open banking API demonstrates that while the rest of Europe has been battling out compromises in the PSD2 revision that will give Third Party Providers at least a little bit of access to some bank accounts, the UK government has its sights firmly set on innovation.

The creation of an open banking API, to be fully implemented by early 2019, will lay the groundwork for a number of changes in financial services. Shared data, and access to that data, will enable consumers to make informed decisions, while Fintechs will be able to use the information to create an increased range of third party apps and services.

The UK has often led the way in dismantling traditional structures; from the 1970s onwards, successive governments have enthusiastically backed privatisation and deregulation as a way of stimulating investment and economic growth – many years ahead of the rest of Europe! Utility companies were broken up in order to encourage competition: Telecoms in the early 80s, Electricity, Gas and Railways in the early 90s. And the push to unbundle and deregulate value-added services from underlying infrastructure incumbents has continued into the new millennium.

This historical willingness to embrace change and increase competition is now evident in the UK government’s attitude towards Fintechs. The Treasury’s appointment of a Fintech “special envoy” in 2015, and a number of tax incentives designed to encourage innovation both indicate a strong interest in growing a sector currently estimated at £20bn in annual revenue.

A report (2) by Ernst and Young commissioned by the UK Department of Trade & Investment cites “customer dissatisfaction with banks and a lack of innovation and investment by incumbent providers” as drivers for the UK Fintech sector. It also highlights the role the UK’s regulatory approach plays in creating a favourable environment for Fintechs. The OBWG’s recommendation for an open banking standard and access to data previously jealously guarded by individual institutions confirms both the need for change and the readiness to embrace that change.

It’s clear that in terms of Financial Services, the UK has its eyes firmly fixed on the future. The question to the other EU governments and regulators is whether they will content themselves with PSD2 or try to follow the UK lead? And the question to banks is whether they want to wait to be forced or pro-actively give Fintechs a broader API to work with, so that their customers can enjoy more value-added services?