What is open banking
Open banking is understood as the release of access to customer data and accounts. With this system, financial information is shared with the client’s consent and access to financial institutions is facilitated for the consultation of a client’s risk assessment.
In this way, competition between banks and companies is encouraged and customers are given control over their data and decisions.
Open banking regulation in the world
The use of this new system has important differences depending on where in the world it is intended to be used. The differences are mainly to be found in:
- The entities and products it affects. It can be banks or other types of financial entities exclusively.
- The type of information. This refers to the data that third parties will be able to access, such as information on transactions or statistical data. All this always with the customer’s consent.
- Type of operations included. For example, payments or the contracting of new products.
In addition, there are different approaches to aspects such as security, data format or user experience depending on the country we are in.
The main regulation concerning open banking is the revised European Payment Services Directive (PSD2). This regulation obliges banks and e-money providers to share their transaction and payment data with third parties.
Affected entities can develop banking APIs that must be approved by the authorities, even if they are not standardized.
In the case of Mexico, it is the Financial Technology Law (Fintech Law) that includes practically all financial entities and data on products and transactions. However, these data do not include payment transactions.
Australia’s regulation of open banking is found in the Data Consumer Rights Act. This regulation is aimed exclusively at banking and establishes the conditions for access to data on transactions and products, as well as the development of standardized APIs.
In Japan, the Banking Act was amended to require banks to open APIs for suppliers.
Although open banking has been in use for some time, regulation does not require banks to provide access to their data, although the U.S. Consumer Financial Protection Bureau (CFPB) is considering changes to open banking.
In 2017, PSD2 was incorporated into UK domestic regulations. The main difference in this country is that large banks are required to follow certain rules when providing data to external providers, according to the Financial Conduct Authority (FCA).
As can be seen, there is no single way to implement open banking. Each country regulates and defines this new system to a greater or lesser extent, and this is not likely to change in the near future. These differences in regulation, obligations, products and entities to which they apply create problems and implications for the financial sector.
Problems and implications for the financial sector
The difference between the different forms of application of open banking may generate some problems as it does not exist in all countries:
- Control over the type of companies that can act as third parties.
- Rules on liability and dispute resolution.
- Sustainability of the systems.
In addition to these three key aspects on which there is no unity, it is also possible that open banking may affect the competitiveness and structure of the financial sector.
There is an inequality in terms of sharing financial data with non-financial firms, but not vice versa. In other words, non-financial companies will be able to access financial data, but financial institutions will not be able to access the information of other companies.
On the other hand, by allowing technological giants to enter financial services, financial stability is compromised.
Open banking consists of sharing customers’ account data and other financial transactions with third parties. There are no common regulations, so there are differences in the type of information and operations, as well as the entities concerned. In Europe, in application of the PSD2 regulation, financial entities and money providers are obliged to share their data with third parties, while in the United States there is no such obligation. Open banking generates certain problems due to the lack of control and common rules, affects the competitiveness and structure of the financial sector and can generate financial instability.