It was an unpredictable and eventful year, but what will be 2016’s main legacy in terms of banking? Liam Lannon, payments transformation consultant at Sopra Steria, takes a closer look at the most disruptive regulations of 2016 and explores how they will challenge the retail banking landscape in 2017
Tumultuous, momentous and unrestrained in its unpredictability, 2016 will certainly be a year to remember. From a regulatory perspective, there were three clear moments which will stay with us into the new year: the second Payments Services Directive (PSD2), the Open Banking Working Group report, and the Competition and Market Authority (CMA)’s investigation into retail banking.
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Like them or not, these are the 2016 events which will shape much of what happens in 2017 and beyond for retail banks.
PSD2
The first event actually happened in late 2015, when PSD2 was published in the Official Journal of the European Union – but the machinations of the European Commission are such that the directive’s ‘entry into force’ occurred on 12 January 2016. To complicate things further, EU member states then have two years to transpose the directive into their own national laws.
Consequently, PSD2 actually comes into effect on 12 January 2018, and all states must therefore follow its rules from 13 January 2018. This means that banks have one year left to get ready and allow access to their customer account information to third parties via open application programming interfaces (APIs).
Open Banking Working Group Report
The second event was the publication of the Open Banking Working Group’s report on 8 February 2016, which established the framework for an Open Banking Standard.
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By GlobalDataThis aims to improve customer choice, while stimulating competition and innovation. The report says implementing the framework will make it possible for banking data to be shared and used securely, and adds that the framework could accelerate the implementation of new EU regulations on banking data.
The Working Group recommends that open APIs should be developed to allow both open data – such as information about banks’ products and services – and shared data, including bank transaction data, to be exchanged between individuals, businesses and third parties.
CMA report
The third event – which gave added impetus to the Open Banking Standard – was the release of the Competition and Market Authority’s report on its investigation into the retail banking market.
In the report, the CMA found that the larger UK banks did not have to compete hard enough for customers’ business, making it difficult for the smaller, new entrants to grow.
To combat this, the CMA introduced a package of reforms, the most important of which required the larger banks in the UK and Northern Ireland to adopt an open API standard to provide access to ‘open data’ by March 2017, and to ensure that all aspects of an open banking standard for the sharing of transaction data were in place by early 2018. The CMA is prepared to impose fines and other penalties if these reforms are not implemented in a timely manner.
High impact
So what does this mean for 2017? The answer can be summarised by one word: open. By opening up access to a set of services through APIs, banks will need to have the systems in place to govern, manage and maintain their customer data, as well as having to manage and maintain the open APIs which they provide at no cost to the market. For established banks, there is an opportunity to get access to other customer information previously unavailable to them.
At the same time, however, there is a risk they will lose out to challenger banks which can select the best data to benefit, improve and transform their service offerings – data will be in the hands of not only the well-known new banks like Monzo or Atom Bank, but also technology companies such as Google, Facebook and Amazon, which could use it to branch into retail banking. As Bill Gates famously said: “We need banking, but we don’t need banks anymore.”
The key takeaway is not to panic but to assess how these pieces of regulation can benefit providers.
While many institutions will be tempted to see these events solely as a compliance piece – and therefore implement minimal compliance – they have the potential to be much more. These regulatory hurdles actually provide new opportunities for banks to become more innovative and open.
If banks can tap into this new, open marketplace quickly, they could reap huge rewards. In short, 2017 could be the year that established banks reimagine their role in the market – or the year that challengers become the new face of banking.
If there’s one thing we’ve learnt from 2016, it’s never say never.
