Open Banking has become a common phrase in the blogosphere, promising a new era of data sharing and new services with Application Programming Interfaces conveying data freely between market actors on behalf of customer – but what data, which market actors, and to what benefit for the customer and specifically for the Cash Manager?
Open Banking is liberally used referring to any one of at least three things:
- The specific UK project, mandated by the UK's Competition & Markets Authority on the UK's nine largest banks, to make data available on and enable payment initiation off personal and SME current accounts, and to furnish data on branch and ATM locations, and overdrafts;
- The demand made under the EU's second Payment Services Directive that banks make data available on and enable payment initiation off "payment accounts" aka current accounts to almost all intents and purposes or "CAs" for short;
- Projects outside the UK and the rest of the EU to do predominantly the same thing – enable aggregators - often but not necessarily FinTechs – to sit between customers and their banks, or Account Servicing Payment Service Providers (ASPSPs) as they are referred to in this matter.
Competition Law issues circle around this topic: the UK's Competition & Markets Authority held that the control that banks exercised over the customer access channel inhibited new entrants, and ensured that a very high market share of consumer and SME current accounts was concentrated in just five banks in Great Britain and another four in Northern Ireland.
The new entrants are known by the generic term "Third Party Provider" or TPP, and then that is broken down into two sub-categories:
- Account Information Service Provider or AISP;
- Payment Information Service Provider or PSIP.
This terminology is common to both UK Open Banking and PSD2 but the scope of the two projects is meaningfully different as regards what Account Information to supply and on what accounts:
| Project | Personal CA | SME CA | Corporate CA | Fin Inst CA | Branch location | ATM location | Overdraft T&Cs |
| Open Banking | ✓ | ✓ | ✗ | ✗ | ✓ | ✓ | ✓ |
| PSD 2 | ✓ | ✓ | ✓ | ✓ | ✗ | ✗ | ✗ |
PSD2 applies to all payment accounts, whoever the owner is; Open Banking focusses on those belonging to consumers and SMEs, and its definition of Account Information is wider.
PSD2 is mandated on all ASPSPs, including eMoney Institutions and Payment Institutions. Open Banking is only mandated on nine banks, although it is hoped that it will create a market that others will join in with.
Overlaying this particular distinction is the fact that PSD2 applies in the UK as well, so the part of PSD2 that overlaps with Open Banking is mandated on all ASPSPs in the UK but with a slippage of time in practice until Q3 2019, whereas Open Banking is supposedly live now.
If that is not confusing enough, what is the scope of the services available?
As regards Payment Initiation, it is broadly similar under both Open Banking and PSD2: an electronic credit transfer, which would be a Faster Payment in GBP in the UK, and a SEPA Credit Transfer in Euro in Eurozone countries and between any EU member states, be that a Core&Basic one settling on D+1 or an instant one known as SEPA INST. These are retail payment options, not treasury ones, so they may or may not be adequate to meet the needs of a Cash Manager.
As regards Account Information, the standard is that the data available from a given ASPSP must be the same as it supplies down its proprietary eBanking channel. This is likely to differ between ASPSPs to a greater degree than the authorities might imagine. In addition, Open Banking involves elements like lists of Direct Debits and of Standing Orders that have not been shared before in the UK, and are not part of SWIFT reporting internationally.
Large Corporates have become used to a form of Open Banking in the shape of consolidated reporting of international bank accounts either directly over SWIFT, via a SWIFT Bureau, via a bank aggregator, or via direct transmission. If a Corporate Treasury is the user, SWIFT reporting is usually adequate, but if Accounting & Reconciliations is the user, direct transmission of statements in a local format is often needed in order to capture accounting codes and depth of transaction detail.
These services are expensive because the user has to invest in considerable technology to convert diverse format and detail of data received, into the single flow of information required by their internal applications, often SAP or Oracle.
Open Banking should reduce the all-in cost considerably and ought to be attractive to users of multiple banks:
- In countries like the UK which have historically had no domestic multibanking standard, unlike a Germany with DTA or a Belgium with Isabel;
- Where multiple banks are used internationally but the user’s budget does not run to the internal technology investment required for supporting current solutions.
In the initial phase, probably from 2019 to 2022, one can expect the greatest benefit to be for SMEs that hold multiple payment accounts in different ASPSPs around the UK and the rest of the EU: it should be possible to obtain a consolidation of account balances on these accounts, and a rudimentary ability to move money between them, as well as a drill-down to transaction detail. That detail may even be enough for them to perform centralised Accounting & Reconciliation if they wish.
That could indeed be a big win for companies whose budget does not run to today’s solutions, but it is likely to be available only from 2019 onwards: disputes about security standards have delayed proper implementation of the requisite parts of PSD2 until September 2019, and it is unlikely that a range of offerings will become available before then.
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