Open Banking and Open Finance

Open Banking has changed the financial industry, and the business opportunities it has spurred have started to find their footing. Securely sharing financial data, subject to customer consent of course, is great for consumers and businesses alike. It has fostered innovation in the financial sector, brought new products and services to the financial market and has effectively compelled banks to engage with FinTechs, develop deeper partnerships and re-evaluate their business. But what comes next?

PSD2, payment service directive II, is synonymous with the term Open Banking. In the future, we can expect a third payment service directive and it will expand upon the foundation laid by PSD2. The expansion of Open Banking is dubbed Open Finance, and stakeholders in the financial industry who have capitalised on the innovation brought about by PSD2 are becoming increasingly eager to offer new products and services under the larger scope of Open Finance, especially in relation to pensions, savings and investments. The scope of Open Finance has yet to be defined, but nevertheless the process has begun. The Financial Conduct Authority in the UK issued a call for input on the subject of Open Finance in December 2019, and other initiatives across Europe, both public and private, have sprung up in anticipation.

The UK and EU appear to be at the forefront of regulating Open Banking and Open Finance, but many jurisdictions across the globe have introduced their own legislation and have applied their own approach to the subject. Divergences between jurisdictions differ on many aspects, and a point of contention with particular interest is the underlying technical standards for the secure transfer of data. In the EU, regulatory technical standards have been revised and updated as regulatory bodies consult with industry stakeholders, but the infrastructure that has been built as a result of this work is ready to handle the expansion into Open Finance.