Regulators and banks must move past PSD2’s “narrow focus”

The narrow focus of the European Commission’s second payments services directive (PSD2) can be improved upon by both regulators and market participants to create a deeper financial ecosystem, according to market participants.

“We’ve gone up and over the horizon with Open Banking and now we’re looking at open data,” says Nick Caley, vice president of financial services and regulatory at identity and access management firm ForgeRock.

“PSD2 has a very narrow focus, especially when you compare it with the US. What the US has is all of your accounts in play. Your current accounts, credit, pension, loans, investment accounts and everything in between. That makes an interesting proposition for full play Open Banking.”

A report from advisory firm Fingleton, commissioned by the Open Banking Implementation Entity (OBIE), a body supported by the nine largest banks in the UK to pursue regulatory compliance, writes that shortcomings in PSD2 have been holding back the uptake of Open Banking in the UK. It writes that gaps in the implementation of PSD2 rules, including those around refund functionality, pre-approved payments, and multiple authorisation, are ones which OBIE will need to fill to progress.

Customers should be able to delete data following the termination of a third-party service, the paper adds, and users should also be able to provide continuous consent to third parties without having to continually log into their apps to do so. It also recommends the extension of Open Banking beyond current accounts, up to and including cash savings, pensions, mortgages and insurance.

“This report clearly demonstrates how far the Open Banking initiative has progressed, and the potential that exists to help create a banking market that better serves consumers and small businesses,” said Imran Gulamhuseinwala, trustee of the OBIE, in a press statement.

“Nonetheless, PSD2 is not a complete solution and we need to further develop the Standards if Open Banking is to fully meet its objectives. As the report points out, there is a pressing need to address refunds, Premium APIs and Open Finance.”

Todd Clyde, chief operating officer at platform provider Token, believes that PSD2 has been a good starting point, but the industry now needs to move forward. “The regulation has been a catalyst and there is now a benefit for banks to move beyond the bare minimum when it comes to compliance. I credit PSD2 with catalysing this whole new ecosystem. Without it we wouldn’t be talking about all these new ways to distribute financial information.

“It’s easy to tarnish PSD2 and OBIE with a broad brush because there have been a lot of constraints and there have been a lot of things that could have been done better from the beginning. Some say there are too many fragmented APIs, that strong customer authentication is a lousy experience, there’s not enough payments functionality. All of those things are improving, we are swimming with the current.

“There is a need to go way beyond the minimum to comply. I think banks and third parties are going to evolve the API’s to greater functionality based upon supply and demand. Banks have opened up to a very narrow slice of the ecosystem, which is regulated third parties. National competent authorities (NCAs) can help to solve the federated and digital identity piece, that’s something that really has to come from a national level. While banks can approve customer authentication on their own, until there’s a central authentication approach I think it’s still going to be sub-par.”

ForgeRock’s Caley points to the pensions dashboard prototype project, which ForgeRock built alongside Origo, managed by the Association of British Insurers (ABI), as an example of the type of service Open Banking could extend to provide. “It is a really interesting underlying infrastructure where you have the government and any number of 300 different pension fund providers on one platform.

“There is an Open Wealth approach here where you can get an immediate understanding of your financial status, whereas right now that might take most of your weekend trying to piece together updates, forms and data from across different services. I think the promise of all of this is that you can get to an instant number and an instant overview.”

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