Open banking has seen some progress since the introduction of PSD2 rules in January, including a few milestone projects in the past seven months. But many customers still shy away from sharing their data with third-party providers.

More than half a year has passed since PSD2 (the Second Payment Services Directive) came into effect in the EU but industry groups, experts and key players in the sector remain divided over whether there’s been any real progress in open banking.

Or has anything changed at all? There’s no definite yes or no answer, according to Marie Steinthaler, head of new products at peer-to-peer lending and investment service provider Zopa. In fact, six of the nine largest UK banks had missed the original deadline for the go-live date of 13 January – hardly a good start. “Since then, most have caught up, but the onboarding processes are clunky and don’t live up to customers’ high expectations for their digital banking,” Steinthaler writes.

The way many financial institutions react to open banking still fails to live up to what open banking could do for them. As Starling Bank, Bud and TechUK pointed out in a recent podcast, banks’ current compliance-driven reaction to open banking means that compliance teams are busy meeting minimum regulatory requirements and getting their IT team to build compliant APIs. But they seem to be missing the point: this compliance-driven reaction falls “short of what Open Banking enables and puts incumbents at risk of disruption by new players”.

Expectations of payments landscape transformationmight have been sky-high, but “it is fair to say that some of wind has been taken out of our sails,” Andrea Dunlop, chief executive of acquiring and card solutions at Paysafe told FS Tech. Her company was one of the first third-party providers to have its Payment Initiation Service Provider (PISP) licence approved.

“There is still an unshakeable belief in the payments community that PSD2 will have the impact it is earmarked to eventually, but progress since the implementation date has been slower than expected,” she explained.

Milestones on the road

But let’s see what’s happening in the UK, one of the most developed open banking markets in Europe. According to stats from the Open Banking Implementation Entity (OBIE), there were 57 providers offering open banking in July, including 36 third-party providers and 21 account providers, such as banks, building societies and payment providers.

“It’s been a slow but sure start to open banking, as expected,” OBIE trustee Imran Gulamhuseinwala said. His organisation has started to see “some compelling and innovative propositions develop which will ultimately help customers move, manage and make more of their money”. OBIE said key milestones in implementing open banking included the accession of  

  • the first third-party provider (Yolt) and the first account provider (Lloyds) in January,
  • the first Account Information Service Provider (Consents Online) to go live in March,
  • the first Payment Initiation Service Provider (Token) to carry out an end-to-end payment through a public API in June.

Another milestone, according to Computerworld UK, was when HSBC released an open banking app in May. The HSBC Connected Money application allows users to check all of their current, savings and mortgage accounts in one place, no matter who they bank with. Also, challenger bank Metro Bank has recently rolled out a developer portal that offers access to third parties interested in developing services on top of its API.

In the UK, APIs were used 1.2 million times in June, up from 720,000 in May, showing promising progress. “Adoption is high when consumers see a clear benefit to connecting their accounts, and when they trust the financial provider who is asking for that connection. In short, the trick is to clearly communicate to data-protective consumers what’s in it for them,” Steinthaler at Zopa concluded.

Haven’t even heard of it

But don’t pop the champagne open yet. A new YouGov survey shows that close to three quarters (72%) of UK adults haven’t heard of open banking and just one in three (28%) are ‘aware of it’. What’s even more worrying is that 45% of those surveyed didn’t understand the ways they could use open banking even though they were provided with a clear description of it.

The research has also confirmed that uneasiness about sharing data is an obstacle to the wider use of open banking. Among those asked, over three quarters (77%) said they would be worried about sharing their financial data with companies other than their main bank. Just 12% said that they would be prepared to do so if it meant access to new, innovative products or services.

Another barrier to increasing adoption is customers’ general satisfaction with their banks. Nearly two thirds (63%) said that they are happy with the service they get from their current bank and are unwilling to try out other companies. The same proportion of participants were not sure whether open banking is actually a positive change that will really benefit consumers. Only 14% said it will, against 22% saying it won’t.

Open banking still expected to bring value

Despite a rather lukewarm reaction from consumers, some market experts are still upbeat about the opportunities open banking offers. Opening up the UK’s current account market could lead to new services for 32.7 million consumers and 4.8m small businesses by 2022, PwC predicted in June. They believe that the open banking market could be generating more than £7.2bn by 2022 if banks, fintechs, credit scoring agencies and tech giants all tapped into its potential.

Customers most likely to share their data tend to be young, urban-dwelling, high earners who are comfortable using technology and multi-banking. They are more likely to switch between financial providers and may use open banking for money management or getting advice on personalised financial products. Interestingly, PwC’s survey also found that many customers would rather share their medical information than their banking data.

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