The path towards open banking

Open banking and PSD2 became a challenging yet rewarding journey of the recent years for European banks.

Open banking became a hot topic in January of 2018, when the second Payment Services Directive (PSD2) became enforced. The latter was aimed at promoting customer rights and improving protection against fraud. As a consequence, this would fuel competition on the market with third-party payments service providers gaining access to bank customers’ data.

The European Banking Authority had then set a deadline for banks to comply with the Regulatory Technical Standards – September 14, 2019. These included adapting to application program interface (API) standards and ensuring full compliance with data privacy (GDPR) and strong customer authentication rules (SCA).

However, it soon became clear that the time frame was way too optimistic. The interpretation of the requirements varied from one institution to another, making it more and more challenging to set up the necessary APIs for data exchange and ensure compliance with the rules. As a response to such scenario, regulators introduced a six-month adjustment timeline.

This was a complex journey for all, for Incumbent banks in particular, who had to revise, adapt and rearrange various business and technological aspects, including overall strategy, technology architecture, security, operating models and governance.

In the meantime, traditional banking institutions faced difficulties in modernizing their technology stack, as doing so also required adapting their long-term strategy and making adjustments to the operating model in place. This was essential, however, in order to accommodate to the new business environment and legislative framework. The flexibility, or rather its absence, combined with at times confusing regulatory requirements, was the principal factor that made it difficult for banks to adjust their IT architecture to comply with the newly introduced standards. For this reason, most of them engaged third-parties for the provision of consulting services in three main areas: technology, organization and strategic partnerships. This became the key move for the smooth and successful transition towards the open banking reality.

There is certainly a lot that still has to be accomplished but the opportunities that open banking has created are already being taken advantage of by numerous users and service providers. This means we are moving in the right direction.