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Open banking providers face obstacles to offering basic services and find it harder to innovate, the European Commission’s leaked legislative proposal admits, as it looks to end to ongoing problems.
Open banking has been one of the most contentious issues for payment players in the EU. At 2023 's Money 20/20, VIXIO PaymentsCompliance reported how disappointed insiders had become about the progress made on the continent.
Perhaps unsurprisingly, open banking features heavily in the European Commission’s payments legislative proposal.
In particular, open banking features predominantly in the EU’s Payment Services Regulation, meaning that standards are likely to be harmonised across the EU.
In documents seen by VIXIO, the Commission looks to make a number of modifications compared with PSD2, and incorporate certain provisions currently contained in Regulatory Technical Standards (RTS), which were created by the European Banking Authority (EBA) as secondary legislation.
Key changes include account servicing payment service providers (ASPSPs) needing to create a dedicated interface for open banking services.
The new documents also include a proposal for users to manage their open banking permissions in a more convenient way, including requiring ASPSPs to offer a dashboard allowing the withdrawal of data access to any given open banking provider.
The documents also show the Commission wants the removal, except in authorised, exceptional circumstances, of the requirement on ASPSPs to maintain a "fallback" (or screen scraping) interface.
Screen scraping works by allowing a third-party provider (TPP) to access a customer’s bank account using their login credentials.
These credentials are then stored by the TPP, meaning it can scrape the data from the bank account and use this information just like a customer.
The method has proved controversial and, while legal in the PSD2, regulators such as the EBA have advocated ending the practice.
Open finance
As well as the PSD3 and PSR, the Commission is also introducing an open finance proposal.
Open finance can be regarded as a progression from open banking.
Legislating for it will mean authorising third-party providers to access a wider range of customer data from various accounts, including savings, pensions, investment, insurance and mortgages.
According to one source in Brussels, stakeholders in these industries are likely to be “taken by surprise” by the legislation and have not given much consideration to the EU’s plans yet.
The open finance proposal looks set to require market participants to provide customers with financial data access permission dashboards, set eligibility rules on access to customer data and empower the European supervisory authorities (ESAs) to issue guidelines to protect consumers against unfair treatment or exclusion risks.
The open finance work will also require market participants to develop common standards for customer data and interfaces concerning data that are subject to mandatory access as part of schemes.
Unlike the original PSD2 open banking rules, data holders will be entitled to compensation for access in the open finance framework.
Here, the Commission has said it expects compensation to be reasonable, based on a clear and transparent methodology and that it should aim at reflecting at least the costs incurred for making an API available to share the data requested.
These APIs will need to implement the common standards for customer data and interfaces developed as part of schemes and require scheme members to agree on contractual liability.
The EU is not the first to bring forward open finance legislation. In March, the UK’s Department for Science, Innovation and Technology put forward the Data Protection and Digital Innovation Bill, which includes amendments regarding data processing and provisions to introduce smart data schemes.
Brazil, meanwhile, introduced its Open Finance Initiative in February 2021.
Marking two years since its introduction, the country’s banking association, Febraban, said that there had been 17.3m customer consents and 45 products and services launched.
