The open banking juggernaut: PSD2, SCA and the journey to compliance
Published 22-Nov-2021 by Julian Wilson, director of consumer innovation, FreedomPay
September 2021 marked two years since the implementation of the revised Payment Services Directive ( PSD2) open banking regulation in Europe. Recent statistics suggest that some 3,400 banks and 1.3 billion accounts are now covered under the directive. What began as a European initiative has quickly been replicated in other regions, with many jurisdictions implementing similar rules but using a different legal approach.
In Australia and South Korea, for example, open banking rules have been introduced as part of consumer data legislation. India has meanwhile implemented a universal payment initiative which is centred around enabling small and medium-sized enterprises. In the United States, what started out as private enterprise led by companies such as Plaid has now evolved into a consortia of banks and industry alliances under the name Financial Data Exchange.
It is not possible to view open banking through an international lens, however, as each country’s rules and criteria for participation differ. There is no standard approach.
To what extent is PSD2 (open banking) taking off?
This is one of the biggest questions being asked about open banking, and the answer seems to be a function of two things:
- The willingness of the government to impose compliance upon the banks.
- How easy is it to be regulated as an open banking provider — open banking providers’ processes and business models are vetted and regulated.
The UK, which introduced a version of PSD2 in January 2018 under the name CMA9, has imposed strict rules for compliance on its banks. These are overseen by the Financial Conduct Authority (FCA). The objective of open banking is to increase competition in the provision of financial services by lowering the barrier to entry for smaller players.
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