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Open banking: UK leads Europe amid “jungle of APIs”

'Focus on Payments': the Luxembourg for Finance event took place on 10 September 2020

The UK leads Europe when it comes to rolling out open banking – but there is “room for improvement” across the continent’s “fragmented” payments landscape when it comes to open banking having “business impact”.

This was among the verdicts delivered during an event on 10 September organised by Luxembourg for Finance, a public-private partnership between the government of Luxembourg and the Luxembourg Financial Industry Federation.

The ‘Focus on Payments’ event saw the presentation of a 56-page report, ‘The European Payments Landscape in Perspective’, published by the Emerging Payments Association (EPA) EU  – a sister association of the Emerging Payments Association, which is a London-based membership organisation – and Luxembourg for Finance.

Open banking – which is enabled by software intermediaries known as application programming interfaces (APIs), and which aims to boost competition by enabling third parties, such as fintech companies, to develop new apps and services – was among the main topics of discussion.

In answer to a Global Government Fintech question on which European countries’ governments the panel saw as leaders and laggards in driving the rollout of open banking, EPA EU’s vice-chairman and general manager, Thibault de Barsy, responded: “Definitely the UK and, to some extent, Germany, have really led the way in open banking. If you want to see where open banking is most advanced in terms of solutions, in terms of use cases and practices, it’s definitely in the UK.”

‘Only at the start of the adventure’

Open banking in the UK is being championed by the Open Banking Implementation Entity (OBIE), a company set up by non-ministerial government department the Competition and Markets Authority (CMA).

At the start of the year OBIE announced that more than one million people have made use of the technology. Nonetheless, the body’s trustee, Imran Gulamhuseinwala, said four months ago that the country was “still in the very, very early stages of open banking”.

Across Europe momentum towards open banking has been driven by the European Union’s revised Payment Services Directive, PSD2, which began to come into force more than two-and-a-half years ago.

“We are only at the start of PSD2 in respect of business impacts – in terms of practical products and solutions that will be offered for consumers,” said De Barsy, expanding on his initial response. “For now, for most of us, what we have seen is the aggregation of [personal finance] accounts […]. But, for some of us, it’s not really impressive, it’s not really ‘added value’ – I think this is where I see room for definite improvement.”

De Barsy continued: “Operators are faced with difficulties at an operational level in the jungle of the APIs that are being proposed by the banks – some are good, some are not good. Some [regulatory] sandboxes [testing environments] are perfect, and others are a real mess. So these are practically the challenges that the operators have in Europe today. What we hear from the field is that we are definitely only at the start of the adventure.”

In the UK OBIE launched an ‘app store’ in June in a bid to help people navigate what it described as a “daunting” market. The number of apps listed has grown from 69 to 83 (as of 14 September).

“Among the multiple objectives of PSD2, is the nurturing of new payment tools – facilitated by open banking. But also in the minds of [the authors of] PSD2 was to have ‘European champions’ [companies] that would be capable of competing with the gigantic American and Chinese players,” said De Barsy, adding that he imagined it would be “at least five years to see the effect of PSD2 in transforming the European [payments] landscape.”

Digital ID and artificial intelligence

Discussion during the event moved on from open banking to touch on the broader possibilities of ‘open finance’, as well as topics such as the use of Artificial Intelligence (AI) in financial services.

On the topic of open finance, one of the other two panellists, Simon Black, chief executive of payments firm PPRO, said: “Before going into a lot more areas of finance, I think what would be beneficial in Europe is a common digital ID scheme – both for individuals and for businesses. There’s huge inefficiencies and huge waste that happens in validating and verifying organisations and individuals.”

The event’s third panellist, Karen O’Sullivan, head of innovation, payments, markets infrastructures and governance at Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF), addressed the topic of AI in payments, saying that she saw two types of use where it could be most beneficial or most developed.

“As things become more digital and people work more remotely, I see the importance of AI in, say, facial recognition and linked security measures – to detect movement, to make sure it’s a physical person and not a photo or a copy of ID [being held] in front of the screen,” she said. “The other real use I see [for AI in payments] is fraud detection, and its capacity to analyse historical data and use that historical data to predict patterns. For instance, using payment and bank transactional data to predict what an individual’s normal uses of a [payment] card are, and anything that deviates significantly from that is flagged as a potential fraud.”