Taking Europe as a blueprint, other jurisdictions are now using Open Banking as an accelerator to meet their own specific goals, which include increasing competition, reducing costs, fostering innovation and addressing consumer rights.
Some of the most prominent regulations globally include:
- PSD2 in the European Union
- CMA Open Banking in the UK
- HKMA Open API in Hong Kong
- Australia Treasury Open Banking
- Other countries in Asia Pacific (e.g. Japan, Malaysia), North America (e.g. US, Canada) and Latin America (e.g. Brazil, Mexico) are currently investigating Open Banking regulations.
In some cases, the regulations are moderate and favor the banking industry, while others more aggressively favor competition, which could potentially threaten banks’ existing business models and revenues.
To some degree this depends on which of the multiple levers regulators use to achieve their specific goals, including:
- Target group: Are all banks regulated or a selected set of banks?
- Product scope: What banking products are targeted? The more products are affected, the more banks will have to find strategies to defend their existing business or take a leader position by innovating themselves.
- Use cases and access types: What type of use cases and access operations can be performed on the regulated products? Banks could lose their role as the trusted gatekeeper for customers, particularly where regulations require banks to open their networks to allow third parties to initiate transactions.
- Cost of usage: What are the costs for third-party providers to use the APIs? Most regulations require banks to open up access for free: in such cases, banks need to find ways to monetize Open Banking.
- Level of openness: Who has access to the APIs? In some cases, regulations allow TPPs to register with the authorities once and gain access to banks’ APIs without any contractual agreements or bank-specific registration processes.
- Level of market involvement: Who is involved in designing the regulation? Are banks’ concerns and ambitions taken into account?
- API standards and infrastructure: Who is designing API and security standards and building the central infrastructure for the market? This is vital: multiple standardization initiatives could lead to fragmentation of standards and directory services.
How should banks act now?
As Open Banking rolls out worldwide, regulators are watching developments closely to learn best practices and implement a regime that will best meet their goals. However, too much regulation could threaten banks’ revenues and jeopardize their financial stability—which is not in regulators’ interests.
The art of Open Banking regulation is in finding the right balance between regulation and market dynamics. Banks in both regulated and unregulated markets should join forces now to take the lead in self-regulating rather being forced to act.
Read my complete article at Finextra for more insights and share your views.
Accenture at Sibos
We’ll be discussing Open Banking and other topics at Sibos. Come see us at our booth and join us in the conversation around enabling the digital economy. Keep up to date on all the latest from us around Sibos right here on the blog.
Beyond regulation, government and stakeholders should take a good look at how Open Banking can drive financial inclusion especially for the vulnerable such as women and minorities.
We know that big banks never find providing services to the excluded profitable, but Open Banking provides a mechanism for smaller fintechs and DFIs to easily scaffold nifty apps for communities and segments that banks would not touch.