Europe's open banking rules may be just the beginning of a bigger revolution if lawmakers decide to expand the data-sharing requirement for banks to other financial institutions and even big tech companies involved in payments and other bank-like services. While banks might initially cheer the expansion of these rules, which they say are giving competitors an unfair advantage, some could struggle in the long run to cope with the unleashing of massive amounts of data.
The U.K. Financial Conduct Authority is in the midst of a consultation on Open Finance, which looks at whether the principles of national open banking rules should include companies in other areas of financial services such as credit cards, mortgages, consumer credit and pensions, with a view to providing consumers with greater choice and pricing transparency.
If the consultation, which ends in March, leads to an Open Finance regime in the U.K., the next step could be new standards applied to other sectors to share their data too, according to David Beardmore, commercial director at the Open Data Institute, a London-based nonprofit.
The U.K. could eventually follow Australia, where the government has begun using open banking as part of a broader approach to consumer data rights, he said.
Australia passed consumer data rights legislation in August 2019, which requires banks to share their data in a phased rollout in 2020, before extending the law to telecom and energy companies.
Open banking in the U.K. has steadily gained traction since the rule was launch two years ago. One way to measure its impact is to monitor the number of "API calls" — that is, how often third parties request consumer data from a bank account using technology known as an application program interface, or API. Figures from the Open Banking Implementation Entity show that the number of successful API calls stood at 215.3 million in November 2019, up from 1.9 million in June 2018. Meanwhile, more than 1 million customers have now used open banking, the entity said Jan. 20.
But not everyone is happy about the arrival of open banking and its EU equivalent, the second payment services directive, or PSD2.
Critics, including a number of incumbent bank executives, say that while open banking may be enabling greater competition in Europe, it is also creating an unfair advantage for newcomers.
"We are asked to open up our data to everyone, which is fine, that's the rule, but if one of my clients wants me to have access to his data on Amazon or Google that is not possible," UniCredit SpA CEO Jean Pierre Mustier said in a speech in September 2019.
Mustier vowed to "push super hard" during discussions with industry bodies to ensure that banks get a "level playing field."
"There is no reason why there should be an asymmetric treatment of banks," he said.
Ana Botín, executive chair of Banco Santander SA, has also expressed concern that PSD2 is "not symmetrical," and told the Financial Times that the directive should be "reviewed for the digital age."
David Birch, an independent expert on digital money and digital identity, sees data sharing as a two-way street.
"I agree with the banks. It's not fair," he said in an email to S&P Global Market Intelligence, noting that if Facebook can persuade people to give them access to their bank accounts, he sees no reason why a bank should not be able to ask customers for their Facebook data.
However, others argue that banks should continue to be subject to different rules when it comes to data sharing.
Banks are "totally and utterly wrong" if they believe they should have access to data held by Facebook Inc., Google LLC and Amazon.com Inc., said Louise Beaumont, executive chair of Signoi, an artificial intelligence and machine learning-focused startup, and co-chair of the Open Banking and Payments Working Group at industry body techUK.
"The data does not belong to the banks. It belongs to the customer. Banks have held customer data for decades but they have done nothing with it, not for the customer's benefit, not even for their own benefit," she said in an interview. "What does Mustier think he can do with all that data from Google anyway, given he's done nothing with the data he has got?"
Given the huge amounts of data that banks hold on individuals, Beaumont said it is understandable that regulators have stepped in to address what is essentially a monopolistic hold over information.
Some banks will thrive and find new opportunities thanks to PSD2 and open banking, while others will struggle with competition from third parties, but they all need to adjust to what she describes as a new reality, she said.
Elina Mattila, executive director of tech industry body the Mobey Forum, added that the "data-sharing stakes" are higher for banks than other industries but that could spur banks into action to think differently about their products and services, she said in an email.
"By their nature banks deal with sensitive, critical financial information which, understandably, they have wanted to keep under lock and key. Financial institutions operate under close scrutiny in a tightly regulated environment, which makes them naturally conservative and risk-averse. In many ways the sector needed the PSD2 regulation to stimulate innovation and digital development," Mattila said.