Implementation of the PSD2 regulation in Europe and the Open Banking one in the United Kingdom (UK) has been a great boon for FinTechs where the governments have necessitated the sharing of customer data traditionally held by banks which leads to improved financial services for customers. However, financial institutions and regulators across the world have yet to keep up with the pace of customers’ demands for improved and personalised financial services. Countries in Asia have taken a market-driven approach in the space of Open Banking which is generally not government regulated.
Banks share customer data through application programming interfaces (APIs) with relevant third party providers (TPPs). This ensures the customisation of financial products where customers are able to view different financial accounts, spends, advice on financial requirements, etc., on a platform. The ecosystem is characterised by a range of products and services by various entities which is possible through the sharing of data by banks to TPPs after the customer consents to it. Providing these same services can be a challenge for traditional institutions with their legacy systems.
Open Banking is definitely a game-changer for the financial services industry. Large banking institutions like DBS, Société Générale and Wells Fargo have embraced this practice and set it at the core of their strategy. Australia recently had the Consumer Data Right (CDR) going live on July 1, 2020, for data sharing in the country. New Zealand is seeking inputs on CDR with the deadline for submissions closing on October 5. CDR describes a mechanism for consumers to securely share data that is held about them with trusted third parties, on the consent of a consumer. The third-party could be another product or service provider or a separate entity such as a fintech.