Open Banking, a concept that is widely discussed but understood by relatively few, is an attempt to enable customers to control their own data while requiring financial services to allow access to this data, when approved, to foster a more robust and competitive financial services industry. While the hypothesis may be admirable, the reality is falling far short according to one European observer.
Andrej Zujev, the founder of Forbis Group – an IT provider in the banking and the electronic money institutions (EMI) sector, says Europe’s Open Banking ambition is a “flop.” Zujev believes certain basic changes are needed otherwise the entire effort will “continue to fizzle.”
Pointing to the European Union’s second Payment Services Directive (PSD2) that ostensibly placed smaller firms in a better position to compete with incumbent financial services firms, Zujev states it doesn’t work:
“The idea, which was trumpeted loudly, sounded very ambitious and very good,” Zujev says. “In developing all of our systems to work with the open banking rules, we’ve run into the fact that it’s a lot of noise about nothing. It’s poorly prepared and incomplete. It’s absurd. I’m convinced the EU’s open banking project has zero future if key changes are not made.”
Zujev believes the current approach is a policy failure.
“In developing all of our systems to work with the open banking rules, we’ve run into the fact that it’s a lot of noise about nothing. It’s poorly prepared and incomplete. It’s absurd. I’m convinced the EU’s open banking project has zero future if key changes are not made,” adds Jelena Michailova, Director of Forbis’ Contomobile.
Zujev explains that prior to PSD2, third parties could agree with individual banks on access to make payment services possible. Open banking was supposed to make that case-by-case effort unneeded by standardizing and unifying access to account information across the EU.
Michailova says that far from being standardized “each actor ultimately interprets and implements things its own way.” Current Open Banking APIs indicate “regional and country-specific differences, and also different specifics for each and every single institution.”
For smaller firms seeking Europe wide access, the effort is deemed almost untenable.
“We want to shout to Europe that what you’re calling ‘Open Banking’ is fake news, it’s a soap bubble. And it has no future. It turns out – the open banking in the EU is a project for two, three, four, maybe 10 banks, and doesn’t have anything to do with a common European payment system,” Zujev says.
Forbis presents two specific proposals for improving how standards and access are managed.
The first is to introduce an ISO standard for open banking in the EU:
“Just like with SEPA notifications – they have ISO standard 20022 and everything is clear. You do the work once and know it will always work. It should be the same for open banking,” Zujev adds.
The other is to give every open banking participant a single point of entry.
“A TPP would connect to its central bank or SEPA payment system provider and be able to access all Europe’s banks. Easy and clear. That would be a real open banking revolution,” Zujev says.
Zujev believes the choice is to either let EU open banking fail or fix what they believe is falling short of the goal.
A representative from Plaid recently told Crowdfund Insider that “Europe and the UK are 5 years ahead on Open Banking as a regulatory scheme, but the US is 5 years ahead on open banking as a reality.” He said that Europe risks defining a market by regulation and hoping it is what consumers want instead of letting competition define the market.