The most interesting outcomes of PSD2 will be derived from companies combining Open Banking with data from other areas like social media or government, argued Miles Cheetham, Open Banking Ltd.
The intention of Europe’s revised Payment Services Directive (PSD2) was to create a fairer more transparent and level playing field in banking, explained Cheetham, head of customer engagement, Open Banking – an organisation established by the UK government to make PSD2 a success.
“That is at the heart of everything we’re doing. Nobody was expecting anything dramatic on January 13,” he said in a panel discussion at the recent Business Banking Forum in London.
Anne Boden, CEO of UK challenger bank, Starling, said: “At the moment, Open Banking initiatives are really focused on the consumer end. The corporate end hasn’t really broken out.
“We have to fight for it to happen because currently big banks have huge market share and us, the smaller players, have a tiny market share. That does not make a competitive market.
“In the absence of a competitive market, when you don’t have enough players to provide the right services, you must provide the data to the consumers so that they can make decision for themselves,” Boden argued.
Ian Rand, CEO of business banking at Barclays argued: “Bluntly, it is in the big banks’ interest for [Open Banking] to happen.”
“If all I do is sit there and wait for the fintechs to leverage Open Banking to take market share off me, my business is only going in one direction,” he added.
“If all I do is sit there and wait for the fintechs to leverage Open Banking to take market share off me, my business is only going in one direction”
Rand argued that banks are currently missing out a lot of potential profits through lending to businesses as “historically, banks are geared up to only offer services to someone with a current account”.
There is “huge motivation” for big banks to lend to a far larger customer base than they do today, using Open Banking tools and data, Rand said.
Open Banking is a far bigger existential threat to Barclay’s business model than technological developments such as blockchain over the next five years, according to Rand.
“Open Banking and APIs will fundamentally change the SME banking industry and so we have got to be ready,” Rand said.
George Bevis, founder and CEO of Tide, took a less dramatic view on the regulatory shift.
Challenger banks Tide and Monzo both have APIs.
“The truth is that to the best of my knowledge, nobody has done anything terribly interesting on these APIs,” said Bevis.
“The most interesting things built on our API were built by us,” he said.
While he admitted there will inevitably be innovations such as integrated accounting software built on APIs, but added, “there has already been plenty of time for people to build the unexpected innovations yet, so I am a sceptic”.
“There has already been plenty of time for people to build the unexpected innovations yet, so I am a sceptic”
Another “contentious” issue surrounding Open Banking was highlighted by Rand.
The UK’s Competition and Markets Authority (CMA) rightly want to shine a light on big banks cross-subsidising the cost of current accounts and other financial products, said Rand.
“They want to make this market a lot more transparent,” he added.
“That is not a problem, but it does also have some unintended consequences because that very model has the potential to stifle some competitiveness.
“What you end up doing is dividing banks into different businesses, which rightly Open Banking will encourage and allow,” said Rand.
“But, you have got to make sure that each one of those business units is taking a long-term approach and that they are able to lend sustainably without the ability to run across multiple products,”
“I’m not tarring with everyone with that brush but, make no mistake, we are seeing bad actors in the market,” Rand warned.
“I’m not tarring with everyone with that brush but, make no mistake, we are seeing bad actors in the market”
Boden was less convinced. She argued: “I’ve had a long career in banking with Standard Chartered, Lloyds Bank and RBS in several countries.
“Big banks are full of great people in a great job but it’s incredibly difficult to do things in a straightforward way.
“The difficulty was we couldn’t get our own processes and systems to work so that we could lend to good people,” she concluded.