European Commission Proposal: Open Banking by 2016

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In order to accelerate retail banking innovation and simplify payments, the European Commission is mandating standardized API access across the EU.

The initiative is part of the European Commission’s Directive on Payment Services (PSD), which aims at “establishing a modern and comprehensive set of rules applicable to all payment services in the European Union.”

The proposal includes a revision to the Directive on Payment Services (PSD2) called Access to the Account (XSA2), which would require banks to provide standardized API access to third parties under the auspices of the European Banking Authority (EBA) by 2016.

As we’ve discussed in the past, creating standards, clear rulesets, and opening access to systems is a boon for innovation and ultimately the consumer. As the European Commission noted, having the same rules across Europe and transparent payment systems results in “faster payments, better consumer protection, and a wider choice of services.”

These changes essentially open up traditional incumbents to outside competition by allowing any regulated entity access to accounts. But even without this new legislation, many banks are already moving toward this direction. French bank AXA, for instance, has already opened up its platform to third-party integration. Fidor, which announced that plans to integrate Ripple last year, is another long time supporter of open APIs.

As Gartner noted:

…banks need to stop relying on reactive product delivery and start providing a delivery model transformation that uses public and private Web application programming interfaces (APIs) and apps. This new approach will enable banks to deliver needs-based services that are relevant to the context, location and technology customers are using, which will lead to proactive delivery that either anticipates a customer need or improves their financials. It will also allow banks to respond quickly to new opportunities, and third-party developers to build the banking solutions they need.

According to Gartner, 75 percent of the world’s top 50 banks will have launched their own API platforms by 2016.

From this vantage point, embracing technological change is an opportunity for existing institutions to differentiate their brand, increase customer loyalty, and provide smarter services.

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