Open Banking, in this document at least, is used as a general term to describe two new pieces of regulation: the Competition and Market Authority’s (CMA’s) ‘Open Banking remedy’ and the European Payment Services Directive 2 (PSD2).
PSD2 covers all payments accounts, including easy access savings accounts and credit cards that are accessible online or over a mobile.
The scope of the CMA’s remedy is narrower and focuses on personal and business current accounts only. However, in time Open Banking may extend to other financial products.
Open Banking requires firms to:
1. Make it possible for people to share their financial transactional data far more easily with third parties online.
2. Allow third parties to initiate payments directly from a person’s account as a bank transfer as an alternative
to credit or debit card payments.
3. Make public and openly share their product information and importantly, their customer satisfaction scores and separately other ‘service level indicators’3.
One big aim is to increase competition in the market by driving innovation in the quality of products and services that customers receive.
The CMA found the current account market has complex pricing, low customer switching, difficulties in comparing products and high charges on overdrafts.
The outcome is that people are paying more for lower quality services than they need to4.
PSD2 legitimises payment initiators and aggregators, bringing better consumer protection, improved security, clarity about liability for unauthorised transactions and some aspects of data protection.
HOW DOES IT WORK?
APIs – or Application Programme Interfaces – are technology that allow banks and other companies to conveniently and securely share data between their organisations.
We use services built using APIs all the time.
For instance, Uber uses APIs to ‘glue together’ Google maps, payments and telephony in one useful app to help people order and pay for taxis quickly5.
3 ‘Service Level Indicators’ will provide additional information about aspects of a bank’s service that might be of interest to consumers. For instance, ‘average call waiting times’. But the exact indicators have not been decided yet and this responsibility lies with the FCA.
4 https://www.gov.uk/government/news/cma-paves-the-way-for-open-banking- revolution
5 Payments Strategy Forum, Draft Strategy, July 2016
6 Payments Strategy Forum Horizon Scanning Working Group Report, 9 June 2016 meeting papers
7 Barclays/Ipsos Mori, Open API: Exploring the views of consumers and small businesses, 2015
8 Inferred from Accenture Payments, Consumers’ initial reactions to the new services enabled by PSD2, 2016
9 BBC News, Contactless cards get a new fan base: the over-60s,19.05.2016
10 PwC, Blurred Lines, How Fintech is shaping Financial Services, Global Fintech Report, March 2016
This report was commissioned by Barclays to engage consumer groups in the debate about Open Banking and explore their views on the topic. It is an independent report to bring new contributions to the public debate and does not represent the views of Barclays.
See here the document
