Two of the most hotly pieces of legislation in finance, PSD2 and Opening Banking, go live tomorrow.
Tomorrow marks the start of the information revolution in banking. PSD2, which is pan-European, and Open Banking in the UK are set to revolutionise the way individuals and businesses manage their finances by opening up access to the heretofore closely guarded reserves of transactional data held by the big banks.
The impact of the legislation could be far-reaching. It is hoped that consumers will be able to get a better handle on their finances across all accounts and services, while lenders are excited about the possibility of being able to price risk more accurately.
There have been a few hiccups along the way. In October last year we learned that Brussels regulators had raided the offices of banking associations in the Netherlands and Poland, on suspicion that the trade bodies were trying to prevent fintech firms from accessing customer information when those customers have given their consent. In December, it was revealed that more than 5 of the 9 banks required to open their data to third parties were behind schedule, and were granted an extension by the Competition and Markets Authority of between a month and a year.
Jaidev Janardana, CEO of peer-to-peer lending platform Zopa (which is itself in the process of becoming a bank), commented on the delays: “It’s disappointing that some of the traditional banks have delayed their own offerings. By contrast, we’re ready to go, and plan to launch our first feature on Monday.”
That first feature will do away with the need for borrowers to upload bank statements to the Zopa platform in order to verify their income. Instead, this will be verified instantly and automatically.
Marie Steinthaler, Zopa’s head of new products, offered an explanation of the practical benefits that Open Banking and PSD2 will bring.
“At Zopa, the introduction of Open Banking and PSD2, as a first step, allows us to streamline our loan application process so that customers can verify their income in seconds, replacing the manual process of uploading bank statements,” she said.
“Currently, over two thirds of people applying for a Zopa loan get a decision on their application in seconds, and with the introduction of this feature we will be able to extend this seamless experience to more of our customers in the future. Beyond income verification – which will be launched next week – Open Banking data will enable us to give our customers even better service, whether it’s through more accurate credit scoring, easier product comparison, or helpful insights into how they can make better choices with their money.”
These benefits, as elucidated by a consumer lending specialist, are expected play out in the small business lending space as well.
“Open Banking will allow fintech companies to challenge the status quo by offering new or similar products, with better customer service, swifter turn-around times and at a lower cost,” said Niels Turfboer, managing director of fintech business lender Spotcap in the UK and Benelux regions. “The monopoly banks have held over customer data will break down and, ultimately, the power balance will shift.”
But Turfboer also offered a word of warning. He said that although Open Banking would make money management easier, there is a danger that “rogue firms” could misuse information or pass it onto unauthorised third parties. Turfboer wants to see judicious regulation that “safeguards sensitive customer and business data”, while also embracing the benefits that the new regime could bring.
Sophie Guibaud, VP of European Expansion at Fidor Bank, warned that although PSD2 will bring revolutionary change in the long-term, consumer shouldn’t expect to see immediate changes.
“For example, one part of the regulations, the Regulatory Technical Standards (RTS) on payment security, won't actually come into force until 18 months later,” she explained.
“The simple fact is that some financial organisations are completely unprepared for PSD2, with research finding that as few as 9 per cent of banks feeling they were ready, as of last month. While some have been ensuring that they are doing the bare minimum to comply with the regulation, most haven’t yet put themselves in a position to really make the most of the opportunities PSD2 brings.”