Nov 08, 2018

Changes in the payment market: how will Open Banking change the world?

What is “Open Banking”? In brief, it is a possibility of managing own funds, held at different financial service companies, within one institution. For example, you may have accounts with two banks, only a credit card with the third bank and you may use an account with an electronic money institution for some payments. If Open Banking operated as described in PSD2 directive, all the accounts would become manageable in one place, however, at the moment, we can only guess whether or not this will be true in the nearest future. 

Today, PSD2 directive in the Open Banking sector is already being implemented in Lithuania, but it has not been functioning to the full extent. However, it slowly progresses towards the full operation. Why is Open Banking moving forward too slowly when the main directives had been described long ago, and the relevant technologies already exist? The answer is simple: financial institutions are not inclined to share customer data because they are afraid that doing so may result in the loss of their customers and customer generated profit. Here, a human fear factor operates, and this is completely normal. 

On the other hand, an interesting fact is that sometimes people still do not understand that they have been sharing their data for quite a while. After all, Google suggests the shortest route to work every morning: the program knows where to go, at what time a person leaves home and what kind of transport a person uses, while Facebook shows ads related to person’s interests. In general, the issue concerning personal data loses its meaning these days: the boundary between private and public data has almost been erased. 

Thus, one should not worry that Open Banking companies will know their personal data because it is useful for a person himself/herself. The most important thing is that these companies ensure that those data are securely retained. How this will be achieved? This is not a simple question, but we should soon have the answer to it. 

Open Banking has an impact on the development of the financial services being provided. For example, technical standards regarding SEPA cards are being currently prepared in Europe. We will be able to avoid carrying around physical Visa or MasterCard cards, a smartphone and an account in one of the European financial service institutions will be sufficient. In a few years, when person-to-person payments have been implemented, payments will be made from one smartphone to another. 

A progress in banking will undoubtedly affect financial service institutions. I would not consider this a threat, but rather a challenge for businesses that do not embrace changes, such businesses will find it harder to deal with such a challenge. Of course, I would not rule out the pessimistic scenario: some of traditional participants in the financial market that are not ready for changes may face difficulties. 

We are living at a very interesting time. I believe that in a decade Open Banking processes will continue developing.

Andrej Zujev

Forbis Group Founder