We've noted before that the implementation of Open Banking (via the EU's Second Payment Services Directive or PSD2) may not be going according to plan. As a reminder, European legislation -- PSD2 is supposed to expose incumbent banking data via structured APIs to third party providers (TPPs) that want to build upon banking information and money movement. In theory, this lowers the stickiness of bank accounts, allows data to travel safely into aggregators and apps, and lays the groundwork for financial bots and agents that make shopping decisions.
Surely, neobanks would benefit from the ability to see and move these traditional assets. Well, maybe not. According to a new report by Fingleton and the Open Data Institute for the Open Banking Implementation Entity (OBIE), "The narrow focus of the Open Banking APIs limits their potential to drive wider competition in the financial sector, for example by helping customers shop around for better interest rates on savings accounts or cheaper mortgages." Additional examples of where the PSD2 mandate failed TPPs included (1) the lack of refund functionality, and (2) the lack of functionality for customers to pre-approve payments to a merchant -- similar to a subscription debit -- instead of a customer having to manually authorize each payment,
The remedial actions for the OBIE included (1) mandate "variable recurring payments" making it cheaper for merchants to receive customer payments, (2) revised customer consent rules to remove the need for customers to re-authenticate with each TPP through their bank every 90 days, and (3) the extension of Open Banking -- beyond current accounts -- to a more diverse range of products such as mortgages, insurance, pensions, and savings accounts. Subsequent to the report's publication, the OBIE announced the initiative to create "Premium APIs" that provide a commercial incentive for banks to address the above listed failures. Those are going to need to be some considerable incentives to get the incumbents to budge. Hopefully, if the TPPs trying to build experiences don't want to deal with incumbent infrastructure, there is always Bitcoin.
Source: ODI & Fingleton (Open Banking Report for the OBIE)