In recent years, the financial sector has been undergoing significant changes due to widespread digital transformation. The introduction of Internet banking, the development of financial technologies and other innovations open up unique opportunities to improve the quality of customer service. Among them is open banking.

Sergey Kondratenko, an expert in the fintech industry, says that open banking is one of the most promising areas in the field of financial technology. But like any technology, it carries risks. Therefore, it requires appropriate regulation of activities. Sergey Kondratenkois a recognized specialist in a wide range of e-commerce services with experience for many years. Now, Sergey is the owner and leader of a group of companies engaged not only in different segments of e-commerce, but also successfully operating in different jurisdictions, represented on all continents of the world. The main goal is to drive new traffic, create and deliver an online experience that will endear users to the brand, and turn visitors into customers while maximizing overall profitability of the online business.

European Union rules for open banking: features of implementation and application – Sergey Kondratenko

The beginning of the development of open banking was slow, since banks had to create the necessary API technology, that is, an interaction mechanism. There are currently over 500 open banking service providers in the UK and Europe and over 4 million users in the UK alone.

With the steady development of open banking, regulators began to set new deadlines for the implementation of this practice, notes Sergey Kondratenko. Europe took the lead at the end of 2022, and there is evidence that regulators in the US and Asia are also planning to follow suit. It must be said that not all European banks have successfully adapted to these changes, and some top managers have lost their jobs due to unsuccessful transition processes.

However, other banks have found a way to cope with this turbulence and seize new opportunities. Winners recognize that sharing their data is inevitable and can be very beneficial if done in accordance with established rules. Sergey Kondratenko notes that in the EU the transition to open banking was caused by many factors. The most successful companies have reimagined their teams to adapt to the new ecosystem. Banks have also found a balance between information technology and traditional business operations.

They were able to integrate the changes needed to make open banking an ongoing process rather than just a one-time initiative. According to the expert, the PSD2 directive has had a significant impact on the financial industry in the EU. Its main objective is to establish the concept of open banking, whereby third parties such as Third Party Providers (or Third Party Providers, abbreviated as TPP) can gain authorized access to a customer’s financial information through an enhanced authentication system . The main objectives of PSD2 include the following:

  • Creating a more integrated and efficient payments market in the EU.
  • Promoting the emergence of new players in the field of payment services.
  • Ensuring safer and more reliable payments.
  • Encouraging lower transaction fees.

In June 2020, the European Banking Authority (EBA) confirmed itself as the main regulator of PSD2, reports Sergey Kondratenko. Thus, it expressed a clear position on the issue of parity between the online banking services that banks provide to their customers directly and through the PSD2 API. The EBA stressed that banks must remove barriers to open trading by April 2021, otherwise national regulators will take supervisory action.

These include the imposition of fines. In 2022, authorities began integrating PSD2 into the Single Euro Payments Area (SEPA) to ensure full coverage of instant transactions in the EU. This step is important as open banking service providers prefer instant payments for the convenience of consumers.

International approach to regulation of open banking – Sergey Kondratenko Europe has historically been considered the cradle of open banking, dating back to the introduction of PSD2, which served as the starting point for the UK open banking standard. Currently, open banking concepts are being used in different countries. Sergey Kondratenko emphasizes that different jurisdictions form their own approaches to open banking. Here they take into account their markets and political goals. In the UK, for example, the Competition and Markets Authority (CMA) introduced open banking to increase competition and stimulate innovation in a market that had long remained largely unregulated. This move was accompanied by a number of immediate measures, including a cap on overdraft (short-term) fees set by the banks themselves. The number of open bank payments in the UK is soaring increased. Thus, from January 2021 to the end of 2022, it grew from 1.2 million to more than 7 million. Providers report that the total volume of open banking transactions in the UK in 2021 exceeded $10 billion.

Both in the UK and in other countries, open banking is developing taking into account individual characteristics and regulation, says Sergey Kondratenko. How does this happen in other states? United States. In the USA, a market approach has been chosen. The government has not taken significant initiatives to support open banking products and services. The financial industry in the United States is highly fragmented, and there are no clear signs of federal policy development in this area. Leading banks are working on API-based offerings in partnership with third parties to attract new customers and gain competitive advantage.

The US National Automated Clearing House Association (NACHA), responsible for managing the ACH (Automated Clearing House) network, has taken the initiative in the form of Afinis. As Sergey Kondratenko informs, Afinis currently offers nine payment-related APIs. He adds that these APIs help with a number of payment transactions: ACH account verification, processing ACH payments, accessing bank contact information, creating a payee profile, checking transaction status, and more. Open banking strategies are also being adopted by third party service providers such as FIS, Fiserv and Jack Henry