Banking half open or half closed?

Several countries, mainly in Northern Europe, enjoyed open banking for more than a decade, whilst others were closed up to now. Some because their banking lobby managed to protect it well, others because their card penetration is so high, like in the UK for example, that there was not much demand for anything else so far.

Is PSD2 opening or closing EU banking?

The EU is now harmonising this situation with PSD2, forcing all banks in Europe to open up to a certain extent. This is good news for the people in the countries, where banking was closed, but bad news for the more advanced ones, where banking was already wide open and is now closing down again to the mediocre standards proposed by the infamous RTS (regulatory technical standards), which empower banks to make Third Party Providers (TPPs) dance to their tune.

Originally, PSD2 was not meant to close, but to secure the previously uncontrolled open banking by a) regulating and supervising TPPs and their systems, b) limiting access to authorised TPPs only, c) imposing liability insurance upon them, and, last but not least, d) adding secure customer authentication (SCA) to de-risk credential sharing.

Not surprisingly, banks are trying to open their doors just a little crack, and taught everybody a lesson in salami slicing. Lobbying every bit of subsequent PSD2 specifications such as RTS, guidelines and opinions, they managed to dilute the law’s original intention, and are now at the verge of getting it all their way. What is surprising, however, is that the European regulator (European Banking Authority, EBA) seems to endorse this, despite being well aware of the negative impact it will have on end-customer products.

TPPs fighting the windmills

Of course, TPPs are battling hard to get this situation improved, for example via the API Evaluation Group, which the European Commission created in early 2018 to give the market some voice. Unfortunately, that is also at the mercy of the banks and with their public scaremongering, they even got the consumer lobbyists on their side in trying to keep banking as closed as possible. This is very unfortunate, because the end-user potential for value added services is huge, and so will the damage be to existing services, unless common sense prevails in the end, which I sincerely hope - still.

Take a look at the telecoms industry and how its deregulation enabled competition to a point where even international calls merely cost a penny and almost everybody can now have and afford broadband internet. Today, we could not imagine living without the myriad of value-added services that came with it. I can vividly remember the incumbents’ resistance at the time, but fortunately, they did not have such a strong lobby and regulators rather supported the incoming challengers.

Taking the customer’s view

PSD2 and RTS leave room for interpretation and TPPs, banks and regulators have different views and opinions. In the end, courts may have to decide, but a lot of time and money could be saved by simply taking the customer’s perspective and allowing the necessary functionality for good products, which is what we really need. Therefore, dear banks and regulators, please take the view of our (joint) customers and:

do not force them getting redirected to your websites, which adds unnecessary screens and clicks and ruins the TPP user experience (make it an optional feature for those who like it, but not a mandatory obstacle for those who don’t);

do not hold back available balances from payment initiation service providers (PISPs), which customers want to see before choosing an account to pay from;

do not hold back non-execution risk data from PISPs, because otherwise merchants have to wait a day or two before sending off the purchased goods;

listen to merchants’ transaction risk analysis to avoid bothering users with unnecessary SCAs;

let PISPs add or remove beneficiaries from the user‘s white-list to improve ease of use;

provide the required user identity data to avoid fraud;

let account information service providers (AISPs) do the strong customer authentication (SCA) for the 90-day consent renewals to avoid separate SCAs every 3 months for every single bank aggregated;

let AISPs access more than four times per day to enable real-time alerts rather than up to 6 hour delays;

let AISPs access non-payment accounts data, which is actually the majority of what users want to see;

put enough contingency in place to ensure continuation of TPP services at all times.

Most importantly, I would like to urge the API standard initiatives to support all that, because otherwise banks couldn’t offer it, even if they wanted to.

It would be a great shame if banks got away with denying their customers all of these functionalities, but they cannot resist the wind of change forever and should remember Gorbachev’s wise words: “Those who are late will be punished by life“. Customers will vote with their feet if banks and their authorities try to hold back services available elsewhere, or – even worse – deprive them of some they enjoyed already.

For once, Europe is ahead of everyone else, so let’s not give up that lead and let’s not waste our time waiting for courts or PSD3!

This editorial was first published in our Open Banking Report 2018. The Open Banking Report 2018 focuses on topics such as building trust, gaining consent and improving customer experience in Open Banking.

About Ralf Ohlhausen

Ralf Ohlhausen, MSc in Mathematics and Master of Telecommunications Business, has over 25 years’ experience in ecommerce, financial services, mobile telecoms and IT. Ralf is responsible for expanding the company’s portfolio and global reach, as well as developing new business areas and partnerships.

About PPRO

PPRO enables integrated electronic payment processing on a global scale spanning the entire payments value chain from acquiring through processing, collection and settlement. Positioned as ‘The Payment Professionals’, PPRO acts as a B2B payments hub, connecting PSPs and other merchant aggregators, such as acquirers and processors, with local payment schemes.