Is Open Finance the Future of FinTech?
Open Banking was introduced into the United Kingdom in September 2019 by the second European Union Payment Services Directive (PSD2). The directive allows consumers in possession of a payment account at an EU headquartered bank to share their data with licensed third-party service providers (also known as TTPs).
TTPs are more often than not FinTechs that construct innovative applications from the democratised data received from Europe-headquartered banks. The open banking system is a consequence of this exchange, with open banking applications offering a consolidated dashboard that displays activity across consumers’ numerous online banking accounts provided by Account Servicing Payment Service Providers (ASPSPs). This innovation seeks to streamline the process of managing account information across multiple banks by offering a single platform to review online banking information.
So far, the Financial Conduct Authority (FCA) has recognised more than 135 new TPPs offering a diverse range of services if customers choose to give them access to their data from payment accounts. The range of services offered by TPPs is broad; from account aggregation (a display of a customer’s combined balance across multiple accounts) to personal finance management, the range of services offered continues to grow.
With sensitive data being transferred to third parties, a question of appropriate regulation arises. The PSD2 directive has implemented strict regulatory measures for the operation of TTPs, most prominently requiring a customer’s consent to give up their data as an express necessity to take their data from a bank. If operations should fail during the use of a TTP and, for example, an unauthorised payment transaction should be leveraged from a user’s account, it is the ASPSP that is currently held as responsible for resolving the issue under current PSD2 regulation.
With the United Kingdom’s anticipated departure from the European Union, the FCA has advised the government to mirror regulation to the PSD2 directive to keep the progression of open finance predictable for users and banks seeking to acquaint themselves with the new tech.
by Brighton Dube