Open banking in a regulated world

Published: Nov 2018
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The payment industry landscape is drastically evolving with new regulations coming into force (PSD2 and GDPR in Europe), fintechs stepping up in the payments value chain, and new API services enriching and challenging the existing e-banking solutions. A recent BNP Paribas webinar explored the key changes.

Steven Lenarts, Head of Product Management Global Channels, BNP Paribas Cash Management

Steven Lenaerts

Head of Product Management Global Channels, BNP Paribas Cash Management

Stephanie Niemi, Deputy Head of Product Management Global Channels, BNP Paribas Cash Management

Stephanie Niemi

Deputy Head of Product Management Global Channels, BNP Paribas Cash Management

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“Today, technology is evolving rapidly. The treasury landscape and, in particular, the payments landscape, is evolving rapidly. Regulation across the globe is pushing forward innovation – driven hard by an explosion of fintech activity – and the user experience is taking centre stage.” So said Steven Lenaerts, Head of Product Management Global Channels at BNP Paribas, as he introduced a recent webinar looking at the place of open banking in a regulated world.

So, what is open banking? In formal terms, it can be defined as a collaborative model in which banking data is shared between unaffiliated parties to deliver enhanced capabilities to the marketplace.

In practice, noted Stephanie Niemi, Deputy Head of Product Management Global Channels at BNP Paribas, “it allows bank customers more choice in the use and sharing of their data with third-party applications in a secure, real-time and resilient fashion, while enabling a broader range of services”.

Even regulators have responded to the opportunity that this can bring, enabling open banking to open up competition and foster innovation to the benefit of the end-user.

In January 2018, the Payment Services Directive 2 (PSD2) came into force in Europe, with the CMA in the UK providing for open banking. In APAC, Singapore and Hong Kong are leading the way towards open banking. Here, initiatives have been driven by the Monetary Authority of Singapore and the Hong Kong Monetary Authority respectively. The same shift is coming to the United States, again driven by market forces and consumer choice.

The chapters in PSD2 of particular interest – in addition to sections on payments processing rules and incident management reporting – are those covering secure customer communication (SCA) and open communication standards (OCS).

In response to this regulatory push, the industry has launched a number of initiatives tackling the challenges raised by open banking. In Europe, for example, initiatives include those organised by the Berlin Group, STET and on open communications standards, the FIDO Alliance, and CAPS on secure customer authentication.

Although PSD2 is an extension of PSD1 – especially in terms of processing rules and value dating of payments with at least one leg in the European Union – it also includes rules on strong customer authentication and open communication standards.

Poll 1: Do you feel open banking is beneficial to your business?
Poll 1: Do you feel open banking is beneficial to your business?

Through these rules, PSD2 enables third-party providers (TPPs) to act as an intermediary between the payment service user and the account holding bank. It defines minimum-security requirements, creating a level playing field between the different actors in the market – and the minimum services offered by such intermediaries that banks must support.

The current scope of PSD2 covers payment accounts and the minimum services cover, access to account information, and the possibility to initiate payments from these accounts. While the spirit of the regulation is very much aimed at retail banking and private individuals, corporates and corporate banking are covered by the regulation.

Implementation guidelines – defined in the regulatory technical standards (RTS) – have been issued. In March 2018, these were ratified by the relevant European regulatory bodies marking the start of the 18-month transition period, after which all actors in the market must comply.

Given the volume of discussion heard recently about APIs (application programming interfaces) Lenaerts explained that an API is “nothing more than an intelligent pipe enabling data exchange between systems”. He added that BNP Paribas intends to publish its first cash management APIs in the fourth quarter of 2018.

For Niemi, the whole concept of open banking is “merely a means to an end”. It is, she noted, premised on value creation via an optimal user experience, delivered through progressive innovation. “As we have seen in the past, individual users consuming retail banking services will be the breeding ground for this idea but the corporate space will follow, considering its own particularities.”

If you missed the webinar and would like to hear the full recording:

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