Reviewing open banking on a global stage

Consumer/SME demand and government mandates are opening up the global banking sector. But we’re still seeing a variety of approaches to structuring open banking systems, with differing outcomes for participating fintechs and consumers. In this blog post we’ll examine how different countries are approaching open banking, and the two main categories each jurisdiction falls into.

Here’s a summary of open banking developments around the world:

• EU: Implementation challenges, licensing issues, consistent pan-EU implementation and limited data field availability under PSD2 continue to limit the growth of open banking. Still, demand is growing.

• UK: The Financial Conduct Authority (FCA) is looking to expand open banking to “Open Finance”, which would include access to more account types.

• Canada: The federal government is moving towards open banking, calling it “consumer-directed finance,” and hoping to adopt the best of other jurisdictions' policies.

• Australia: Australia’s Consumer Data Right (CDR) is the world’s most expansive rights-based regulation, but implementation delays have pushed back its launch, and regulators are exploring whether intermediaries should play a role.

• Singapore: Singapore released a strategy book to help banks launch API technology, aiming for an “organic” and market-driven approach.

• Mexico: In a country where only 37% of citizens have a bank account, the government has launched The FinTech Law that covers open banking, cryptocurrencies, payments, and more. The FinTech Law is focused on opening up access to the unbanked in order to encourage more citizens to open a bank account.

• US: Regulators are exploring ways to enforce consumer data rights; industry groups are pressing for standardisation, and major institutions are stepping in with their own suggestions.

Market driven versus government driven

While the above jurisdictions take different approaches to open banking, they broadly fall into two main categories: market driven and government driven.  

Market driven (US, Canada and Singapore)

The US, Canada and Singapore have not introduced formal open banking regimes. Instead, the governments are focusing on new measures to promote data sharing frameworks.

Headquartered in the US, Plaid has actively partnered with American banks and fintechs since 2012 to promote data sharing and transparency in a traditionally opaque sector. We faced the same challenge when we expanded to Canada in 2018 – another market without a specific open banking regime that is considering increased transparency and data sharing.

Today, open banking decisions are being made in these countries and you can add your voice to the discussion. Finance Canada is holding working groups to explore structures for consumer-directed finance throughout 2020. And in the US, regulators including the CFPB and Federal Reserve continue to hold office hours to communicate with fintechs on the matter.

Government driven (EU, UK, Mexico and Australia)

The EU, UK, Mexico and Australia have gone down the prescriptive regulatory framework route. This method has its benefits and downfalls.

Plaid also operates in the UK and EU, and has seen the challenges of a prescriptive regulatory regime. The big ones being the scope of accounts and licensing requirements.

The main objective of open banking is opening up data so consumers can better understand their finances. But how can a consumer better understand their finances when third party providers can only access, clean and categorise payment account data (and not all of their financial data)? This results in consumers gaining the benefits of innovative products for only a subset of their financial accounts, namely their payment accounts.

Under PSD2 any firm accessing and displaying payment account information need to be licensed to provide these services. This can be a challenge for smaller fintech start-ups that do not have the resources or expertise to undergo this process. This in turn limits innovation with the payments sector.  

Things could change soon: The next stage of open banking is open finance, to which the UK FCA published a Call for Input on Open Finance in December 2019. In addition, the European Commission published two consultations looking at payment services and the broader FinTech agenda.

Looking to the future

Open banking initiatives are here to stay, and lessons can be learned from the EU and UK. However, even in those jurisdictions, open banking implementation isn’t done. Both the UK and EU are already considering Open Finance as the next step.

What this means for the market, consumers and industry players is yet to be determined, but it will continue to push the boundaries of innovation within the global payments industry for years to come.  

Contact Plaid to learn how we can support your open banking initiatives. And check out the other posts in our Open Banking series:

• Open banking: Should I build or partner?

• Open-banking-as-a-service: what does that actually mean and how does it work?