Internet of Things
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HM Treasury has announced that the Open Bank Working Group (OBWG) it established in 2015 has recommended the creation of an Open Banking Standard. This comes as no surprise, given the UK government's intention to bolster the UK's standing as a financial center.
When the second version of the European Commission's Payment Services Directive (PSD2) comes into force, the requirement for banks to provide third parties with secure mechanisms to access their client's accounts will likely have far-reaching consequences.
Access to accounts – XS2A as it has become known – will allow new classes of trusted third parties (TTPs) to use an application programming interface (API) to interact with customer accounts without intermediation by the bank, other than ensuring strict new security requirements for the initiation and processing of electronic payments and the protection of consumers' financial data.
The TTPs come in two types. The first is payment initiation services providers, which will be able to make requests for payment. The second is account information services providers, which will be able to access data to provide services such as personal financial management (PFM) tools that require the aggregation of information held in multiple accounts (and possibly several institutions).
The intention is to stimulate competition and innovation. Customers would not keep their savings and checking account at the same institution if they could get, for example, a better interest rate by moving their money elsewhere. A PFM app would let them manage all their accounts from one place.
The UK government is keen to bolster the UK's standing as a financial center, to protect the UK's banks from onerous EC regulations, and to stimulate competition and innovation (although not necessarily in that order of priority). It established the OBWG in 2015 to create a UK Open Banking Standard for the API. Payments UK, the industry body formerly known as the Payments Council, is undertaking similar work in parallel.
Laudable as this work is, Ovum fears that it may be a protectionist maneuver masquerading as a competition enabler. UK banks will be able to point to the UK API and say they are implementing the requirements of XS2A. However, the one banking operation in the UK that is already implementing these requirements without waiting for the OBWG and Payments UK is Fidor. The German online-only bank is planning a current account and savings bond offering and aims to provide access to accounts through the open-source API developed by the Open Bank Project.
David Bannister, Principal Analyst, Financial Services Technology
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