The new initiative of enabling third-party access to banking data, open banking has created enormous space for innovation for fintech companies, promising an ample of opportunities to develop and deliver new, powerful financial products. It plays an important role in facilitating cross-border payments and hence, promised to be a major catalyst driving innovation for new banking products. However, various regulatory hurdles, as well as data and technology discrepancies, are hindering smooth solution roll-out, while failing to become the building block of the open financial services ecosystem. If Europe wants to take advantage of the system, regulation would need to be consistent across all member states and updated for the available technology.
Combating data and technology discrepancies
Lithuanian banking firm ConnectPay have recently rolled out their Merchant API product. According to Marius Galdikas, CEO at ConnectPay, they have experienced this challenge first-hand in the midst of rolling out their Merchant API product. “Each state interprets PSD2 regulatory policies differently, resulting in subtle nuances that need to be taken into account on a country-by-country basis, which leads to a plethora of differences and effectively limits smooth rollout,” Galdikas commented.
“Also, our Merchant API Is powered by Payment Initiation and Account Information services (PIS/AIS). In many cases, PIS and AIS cannot work without the other, however, they are regarded as two different licenses with separate regulatory nuances, adding to the challenges It is inconsistencies like such and the absence of a clear, unified approach towards what payer data hinders further progress and the presence of a truly open financial service ecosystem.”
API availability in Europe
Even though a recent report has found that the API availability in Europe has greatly improved in 2021, there is still much room for reducing friction for customers and improving the user experience. For instance, innovation has slowed down considerably due to the fact that European regulation is outdated with respect to modern APIs, many of which require extra steps for user authentication. “While the intent is to improve security and the extra friction is in line with user expectations on ease of use. As such, they deter users that instead opt for other apps and payment methods,” Galdikas explained.
Unified payment provider list
“What could help enable Open Banking is a unified payment provider list in the European Union with real regulatory authority, as the present Register, set up by European Banking Authority is based only on the information provided by EEA Member States, meaning that unlike national registries under the PSD2, it has no legal significance,” Galdikas stated. “In addition, specifying the regulatory requirement scope would aid tremendously in addressing the problems at hand.”