The utopian vision of open banking dreamed up by the European Commission when it drafted the PSD II regulation is unlikely to emerge from day one of implementation.
On the fringes of EuroFinance this year in Barcelona, banks are having discussions with one another and their corporate customers about the bold new vision of open banking that will arrive with the implementation of Payment Services Directive 2 (PSD 2) in January 2018.
Under PSD 2, cash management and payment services will no longer exclusively be developed by banks in-house. Instead, they will have to open their back-end systems and customer data to third-party providers, via application programming interfaces or APIs.
“We need to let more of the outside in if we want to be quicker to market,” says Natalie Willems-Rosman, director and head of payables and receivables, Global Transaction Services EMEA at Bank of America Merrill Lynch. Willems-Rosman says open banking will make it easier to share data and pave way for a new level of services—for example, instant payments—and enable banks to more quickly deliver banking services to their corporate customers.
Rosman says it is working closely with fintechs to develop new services for corporate customers, including leveraging artificial intelligence, optical character recognition and machine learning to help companies improve reconciliation of incoming payments.
A lot of corporate customers are asking their banks what open banking is going to like in less than 12 months’ time, but it seems nobody really knows at this stage.
The utopian vision of open banking dreamed up by the European Commission when it drafted the PSD II regulation is unlikely to emerge from day one of implementation.
Whilst banks are piloting their open banking platforms with corporate customers and fintechs, Willems-Rosman says it is still not clear how fintechs will connect to the banks. “It will not be helpful,” she says, “if every bank has a different way of connecting. From a fintech or corporate perspective, you don’t want to have to connect to 10 or 20 different APIs. Hopefully, over time standards will evolve.”
At EuroFinance’s Treasury Lab in Barcelona, Craig Ramsey, global innovation lead, Global Liquidity & Cash Management at HSBC UK, highlighted issues around releasing customer data to third parties such as fintechs. “Data protection regulations and PSD 2 are diametrically opposed,” he says.
Willems-Rosman says her US colleagues are shocked to learn what is happening in Europe with respect to open banking. “They say, ‘What are you guys doing in Europe? Are you really going to allow the free exchange of information?”
Under open banking, consumers and corporate customers of banks will need to give their consent to share their data with third-party API providers. But currently, there is no standard way of providing consent, and there are no precedents, as nothing like this has ever been attempted before. Banks will also need to ensure that the fintech partners they decide to work with under open banking will be around in five, 10 or 20 years.
Regulatory technical standards for APIs under open banking are due to be released by the European Banking Authority this November. “A lot of banks are waiting to see what is in those,” says Willems-Rosman, adding that Bank of America ML wants to build out a global API framework.
