Open Banking launched on Saturday 13 January 2018 to meet deadlines to bring into force the Second Payment Services Directive: a substantial piece of EU regulation which applies across all EU member states. You may have already heard of "PSD2", as its know in the trade, particularly if you've read the Notices of Variation of your current account terms and conditions that would have dropped through your letter boxes just over two months ago.
UK Finance, the banking industry's main trade body, has handily published a set of FAQs on PSD2 and Open Banking, and I'll refrain from repeating the content of those FAQs in any detail here.
However, key points include:
- The future isn't yet here. The regulations to implement PSD2, and the changes that have been made to your account T&Cs, facilitate the introduction of new payment services that will be available on all the usual digital platforms. Those services are not yet ready to be delivered to bank customers, and may still be some way off.
- Account Information Services will allow third party providers (TPPs) to aggregate information about all of the different bank accounts you hold. These TPPs are likely to be a combination of new FinTech companies and traditional high street banks. Whilst Fintech has the IT capability and the agility to enter the market quickly, it is undoubtedly the case that the banks have the customer base and the marketing muscle to penetrate that base.
- Payment Initiation Services will all you to authorise a TPP to initiate a payment or series of payments direct from your account, all within a secure digital environment. How quickly this might develop to challenge the might of credit card companies remains to be seen. The successes of the likes of Apple Pay and Google Pay are good indications of how that battle might play out.
- This is all optional. As a consumer, you can choose: and TPPs can only interact with your accounts with your specific consent, which you can withdraw at any time. This might be the one occasion when you should actually read their T&Cs before you agree to them!
- Security and the protection of data are key. If you are signing up with a TPP, then you should be checking that they are authorised and regulated by the Financial Conduct Authority. That is not a guarantee of protection in all circumstances, but should provide at least a degree of comfort.
We've still to see what these new banking apps will look like and whether they will be worth all the recent hype. However, given the exponential expansion of contactless payments from a standing start over the last couple of years, I suspect that the current generation of Smart phone users will take to this like a duck to water.
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