Mercator Blog

As Open Banking and Its Enabling APIs Debut in Europe and the U.K., the Waves Are Felt in the U.S.
Date: March 26, 2018
Ken Paterson
Vice President, Special Projects
The trend of open banking in Europe and the U.K. is in an awkward state. Open banking is hyped as the threshold of a new era for banks and their customers, yet its use cases for account holders are far from clear and not yet revolutionary in vision or reality. The application programming interfaces (APIs) which are so critical to implementing open banking are similarly ambiguous as to where banks and their customers will find their main value (beyond compliance alone). And what lessons from these market developments will be imported to the U.S.?

The report, Open Banking and Its APIs Debut in Europe and the U.K. . . . and Next?, focuses on the state of play of open banking in Europe (driven by Payment Services Directive 2, or PSD2) and in the U.K. (driven by the Open Banking mandate of the Competition and Markets Authority, or CMA), with particular emphasis on the business models and end-user outcomes that may arise in this new competitive and IT environment. The aim of the report is provide a reality check of the promised customer benefits and institutional stakeholder implications of open banking and its enabling IT infrastructure.

For our U.S.-based readers, it is worth remembering that both the EU’s PSD2 and the U.K.’s CMA Open Banking mandates are regulatory interventions intent on an array of market reforms, especially:
  • Encouraging entry of new banking and payments competitors, including new banks, online banks, and fintech entrants, in markets perceived to be competitively stagnant

  • Driving more competitive pricing to account holders, as well as product innovation

  • Improving account holders’ data access and data portability to drive wider use of account aggregation, personal financial management (PFM) services and easier current account switching, respectively, while improving data security.
With regulatory interventions, these markets are setting up a series of grand experiments whose impact will take years to evaluate. However, it is fair to say that the concept of open banking implemented via common APIs, based on an account holder’s ability to control his/her own financial data streams, has captured imaginations both within Europe and outside. Good ideas could have far broader impacts than market-specific regulatory mandates, and open banking concepts could spread independent of regulatory interventions. As we watch the early days of these experiments unfold, we will get an idea where the real value of open banking concepts and practices lies for institutions and their customers.