Open banking in the UK pressured the legacy banks to open up their data to Third Party Service Providers (TPSPs) which stirred the financial landscape. Continue reading to find out the summary of open banking and the meaning behind it.
Up to the Second Payment Services Directive (PSD2) which enforced open banking on the banking industry it was calm before the storm. No significant changes happened in the financial industry apart from a few occasional ideas like the invention of an app or contactless payments. The banking industry was used to retain their customers from their teenage years until death does them part.
When the invention of open banking emerged it brought significant transformations to the end-user views and the legacy banks approach to customer service.
The definition of open banking
Open banking in the UK touched its nine legacy banks (Barclays, Lloyds, Santander, HSBC, Allied Irish Bank, Nationwide, Danske, RBS and Bank of Ireland). It pressurised them to open up their data to authorised TPSPs in a protected and legislation regulated manner. The data meant that legacy banks had to grant access to a bank’s branch location or their offered services and products. It was meant for consumers to establish which branches fit them the most, in cases of disability etc. It also aided to identify the best account services with the most advanced features for businesses and individuals.
The very first open banking regulation known as the Payment Service Directive (PSD) came into effect in March 2017. The Second Payment Service Directive (PSD2) emerged in 2018 requiring the release of consumer financial data related to transactions. The legacy banks had formed a monopoly with all the customer financial and spending information, but couldn’t devise how to use it effectively and to their advantage. Therefore, it just sat there, bringing zero benefits to either party.
Open banking allowed TPSPs to access that data and develop ways to benefit all. Therefore, open banking is a way that facilitates data sharing and creates new product offerings that match customer demands. However, it is crucial to note that nobody can access that data without the actual account owners consent.
A summary of open banking in the UK
The PSD2 regulation came into force on 13 January 2018. It was expected to have further updates and clarifications of the regulation for another couple of years.
Open banking in the UK (PSD2) is being enforced by Open Banking Limited. It was specifically created for this purpose and runs as a non-profit. Nevertheless, the implementation depends on the Competition and Markets Authority. The consumers will be safeguarded by their banks (for transactions) and the Information Commissioner’s Office (for data).
In the short term, consumers should start recognising the ease of using financial services. These services include viewing finances, getting loans and online payments. In the enduring years, PSD2 should bring more significant changes and the financial landscape might be entirely renewed. The regulation is extremely secure and protected against fraudulent activities, however, it will face the challenge of remaining that way with the ever-changing digital world.