LONDON: Open Banking is kind of a nebulous term. Unless you are very engaged with the UK financial sector it probably means little to you. Yet the concept of Open Banking will have profound ramifications for consumers and businesses in both the UK and Europe.
In brief, Open Banking is associated with the European Union’s second Payments Services Directive (PSD2). Both PSD2 and Open Banking kick off on January 13th with overlapping objectives but are not quite the same. Valdis Dombrovskis, EU Vice-President responsible for Financial Stability, Financial Services and Capital Markets Union, says PSD2 will promote the development of innovative online and mobile payments, which will benefit the European economy. Simply banning surcharges for consumer debit and credit card payments could save annually more than €550 million for consumers.
For PSD2 the new rules are as follows:
- Prohibit surcharging, which are additional charges for payments with consumer credit or debit cards, both in shops or online
- Open the EU payment market to companies offering payment services, based on them gaining access to information about the payment account;
- Introduce strict security requirements for electronic payments and for the protection of consumers’ financial data;
- Enhance consumers’ rights in numerous areas. These include reducing the liability for authorized payments and introducing an unconditional (“no questions asked”) refund right for direct debits in euro.
These rules kick in for EU member states that have complied with national laws and, as one may anticipate, not all have member states have done so.
In the UK, Open Banking is a new way for customers to take control of their financial data and share it with selected organizations other than their banks without the need to share their credentials with third parties. Directed by the UK’s Competition and Markets Authority, consumers will regain control of their data and will not allow financial services to benefit from the information unless given explicit permission. For businesses, it is predicted the management of cashflow and receiving payments will become cheaper and easier.