The European banking system’s competitive advantage lies in standardization
The regulatory environments for open banking between the United States and Europe are vastly different. While the EU and U.K. are requiring banks to adopt open banking, the U.S. leaves the decision up to the private sector.
The EU and the U.K. have both passed laws that explicitly require their banks to create application programming interfaces and open those APIs to third-party developers. The EU’s second Payment Services Directive (PSD2) is compelling European banks to create best practices in APIs, vendor integration and data management, according to the article published on American Banker.
Fintechs within the U.S. must create individual data sharing agreements with each bank partner, and the negotiations for each partnership can be resource intensive.
However, in the EU a fintech can get access to all bank APIs through registering as an account information service provider (AISP) or payment initiation service provider (PISP).
This could create a situation where the U.S. may lose out on technology investments and see innovative financial professionals leave the nation to work in the rapidly advancing open-banking environment within the EU.
The U.K.’s Competition and Markets Authority (CMA) requires banks to allow authorized third parties access to customer account data. The CMA created the Open Banking Implementation Entity (OBIE) in 2016 to deliver open banking. The OBIE has since created standards for APIs, security, messaging and processes for managing disputes. The OBIE has also created the Open Banking Directory to register and supervise third-party providers. These initiatives may reduce uncertainty through standardization and make it easier for fintechs to create financial solutions.
There are currently no such requirements in the U.S. that mandate banks adopt open-banking standards,
These factors may force American banks to keep pace with their European counterparts. At the end, the standards being created by the EU and U.K. could become the de facto practices for the U.S.