As the deadline for adoption of PSD2 (payment services revised directive) by the countries of the European Economic Area approaches, the European financial services market prepares for the impacts that the introduction of open banking is bound to cause on the current structure of this segment.
Open banking in PSD2
Open banking is based on the possibility of provision of financial services by banking or non-banking third parties based on authorized use of the banking data of a user. The concept relies on the view that because such data are the property of users as opposed to the institutions that manage bank accounts, the choice to allow access to such data lies with users.
In order to comply with PSD2, European banks will have to open their platforms and allow access to third party information – where authorized by the respective users – through their APIs.
Pursuant to the directive, European States intend to terminate the monopoly on financial services enjoyed by banks and foster competition and technology innovation. In sections 66 and 67, PSD2 establishes two new types of financial services providers: AISP, or account information service providers, providing for example analysis services and expense standard control, credit analysis and consolidated management of banking information of account users in different banks; and PISP, or payment initiation service providers, who may offer users services such as peer-to-peer transfers or bill payments.
Under the regulation, provision of services by AISP and PISP does not require any contractual relationship between them and banks, but only the express consent of the relevant users.
Expectations for the European market
With the adoption of PSD2 by the European community, a transition from its financial services market is expected. In its current structure, this is a market dominated by banks and largely domestic, with hardly any incentive for provision and use of cross-border services.
The expectation is that with the implementation of open banking and consequently an easier way for the provision of financial services by non-banking entities, regulatory simplification, as contained in the directive, decreased costs with regulatory interpretation and adaptation by players interested in providing cross-border services, current domestic closed markets should be gradually replaced by a unified and open European market.
As a result of such changes, banks should prepare to increased competition and the likely market dispute with fintechs and technology giants, such as Google or Amazon. Technology innovation, nowadays a very important component in the context of financial services, should become the competitive edge for the players of this market interested in keeping ahead of competitors.
Influences on the Brazilian scenario
In Brazil, there is yet no expectation for open banking to be regulated in the near future. However, it is known that the Central Bank has been following the topic and the European directive. In fact, the directive could be the inspiration for the Brazilian regulator at a later point.
Still, although there is no obligation to open their APIs, some players have already moved towards implementing open baking in the Brazilian financial services market. Among the tests of this technology by domestic banks and fintechs, the partnership between Banco do Brasil and app Conta Azul, as well as the Quanto platform, with partnerships with Banco Rendimento, BCredi and Kria, are noteworthy.
However, the issue of access to banking information by third parties is still sensitive in Brazil. The court battle between Bradesco and GuiaBolso in which the bank accuses the finances app of breaching its users’ secrecy is an example of the hot topics in this area. The legal proceedings are heard in camera.
Open banking is a subject with great potential for evolution both in the international and Brazilian scenarios. It is difficult to consider that this technology would not be developed in Brazil. Therefore, financial market players should pay attention to the next developments on this subject, in particular in relation to the European experience, and be prepared to implement it at some time in the future.
Naturally, technology is not risk free – in particular in relation to risks involving user security and user information secrecy. It is important for market players and the appropriate authorities to monitor these risks.