EU To Introduce Changes to Banking Legislation
Under current banking legislation, banks are allowed to access vast amounts of information and data about their customers. This gives them a massive advantage over other competitors in the industry; including financial technology firms. However, as of next year, banks operating within the EU will be required to make their data open to third party companies as long as consent has been given from the customer.
EU lawmakers hope that the revisions to the Payment Services Directive (PSD2) will give non banking companies an opportunity to compete with banks – giving consumers across Europe more choice when they purchase financial products or services. The transition towards the “open banking framework” will give online and non banking firms, like Amazon and IBM, the chance to create and market their own financial products using some of the data provided by banks.
What does this mean for the banks?
The new legislation will require banks to build application programming interfaces (API’s) which will give third parties secure access to their data. These API’s will allow developers to build and sell new financial products and services based on the data they retrieve, which would include customers’ credit history, income and spending habits.
Anne Boden, co-founder and chief executive of U.K. mobile-only bank Starling “In a world of open banking, the customer can choose a provider in each part of the value chain. And each bank has to participate in the value chain as an earners’ right to be there. You can’t just assume you’re going to have the end-to-end value chain. Barclays and HSBC and RBS, at the moment own everything in that value chain — the app, the back-end, they sell other products. In a world where everybody earns their right, you could have the app from HSBC and the back-end from Barclays.”
Other banks and lenders across Europes, including BBVA, Saxo Bank, Nordea and Ulster Banks have already published open developer portals in response to the news of the upcoming changes in legislation. HSBC have also made some early changes, including the introduction of an app that lets its customers view all of their bank accounts on the same screen – including those accounts that are held with competitors.
What does this mean for technology companies?
It’s hoped by the EU that the changes will allow technology companies to create new products which are designed to give consumers and alternative to regular banking. Among the technology firms expected to benefit from the legislation are Starling and Monzo, whose businesses connect customers with products and services (including from competitors), and who aim to provide a banking service that resembles a “marketplace”
Tom Blomfield, co-founder and chief executive of Monzo commented “Where we’re going longer term is in marketplace banking, where we’re trying to build Monzo into a control center, into a dashboard, a marketplace. So we do the day-to-day money management, but say for example you want a mortgage, that’s not something we would provide,” he said, “so actually we’ll offer mortgages from other banks on our platform.”
However, there are some concerns that giants like Amazon, IBM and Facebook could use the legislation to disrupt the banking industry. Antony Jenkins, former CEO of Barclays, said “I think it’s highly unpredictable,” Jenkins said. “What is certain is there is going to be disruption. All financial services products are just data. So companies that are very good at managing data are advantaged in this space. I would also say that once you get into an open banking world, when you don’t actually have to be a bank and you can manage a big balance sheet and have all the regulation that goes with it, it changes the game.”