Navigating Europe’s fragmented open banking landscape

Published in our 2022 European open banking report, Yapily’s Director of Public Policy, Maria Palmieri, gives her view on Europe’s fragmented open banking landscape and why the introduction of PSD3 will bring us one step closer to open finance.

There’s no doubt that PSD2 has fostered innovation across the European payments landscape, encouraging more competition and the development of new financial solutions for consumers and businesses.

However, localised payment systems and fragmented regulatory approaches mean different EU member states are implementing open banking at different speeds. As a result, market readiness varies significantly across Europe, creating headaches for financial institutions, payment service providers, and businesses from SMEs to enterprises.

Recently, the EU Commission has been taking steps in the right direction, having introduced the eIDAS framework last year to ensure data sharing between businesses is safer, faster, and more efficient. The Commission is now expecting industry responses to its consultation on the next evolution of PSD2, and a new framework for open finance.

The journey from PSD2 towards PSD3

As the EU takes stock of progress over the last four years, it’s now contemplating what more can be done to ensure that consumers are given better choices as open banking continues to evolve.

PSD2 has very much laid the groundwork for open banking to thrive, particularly increasing competition in retail payments. Now, the European Commission (EC) has the opportunity to go one step further and resolve some of the systemic issues that have surfaced as the open banking ecosystem continues to grow at pace.

It’s encouraging to see the European Banking Authority’s (EBA) recommendations on the PSD2 review taking challenges that many in the open banking community have faced into consideration.

This includes transparency requirements from Account Servicing Payment Service Providers (ASPSPs) - traditionally banks or similar institutions; acknowledgement of the barriers to third party providers from delayed implementation; as well as some clear proposals for a future open finance framework.

Adoption is skyrocketing across much of Europe, but there’s so much more we can do.

As we embark on the journey from open banking towards open finance, a regulatory framework for the future will need to unite the fragmented approaches currently adopted by different EU member states, recast the net for those captured by anti-money laundering requirements, and take on a broader scope to include more than just payments accounts.

UK regulators under pressure to maintain the top spot

It’s unsurprising that the UK has again topped this year’s European open banking league table - its success largely driven by the appointment of the Open Banking Implementation Entity (OBIE), an organisation dedicated to driving open banking innovation and adoption.

The UK’s forward-looking, regulatory-led approach has brought banks and third party providers together to maximise market participation and increase productivity across the sector. And yet, many questions still remain around the future of open banking in the UK.

With the current mesh of regulators under the Joint Regulatory Oversight Committee (JROC), it’s almost impossible for fintechs, banks, and TPPs to plan for the future.

The UK open banking ecosystem would benefit from the creation of a formal open finance framework and further guidance on the future role of the OBIE, particularly around monitoring and enforcement.

Further regulatory delays risk stifling UK fintech innovation

In order to stay competitive and maintain its lead, UK regulators must act quickly and decisively by adopting the necessary governance model needed to encourage further growth and innovation.

Following the CMA’s approved July deadline for the implementation of variable recurring payments (VRPs) for sweeping, we’re now anticipating how many ASPSPs will make it available.

As more premium APIs like VRP arise, more innovative use cases for open banking will be realised (for instance, e-commerce). But before we get there, more collaboration between policymakers, banks, and TPPs is needed to ensure the transition from open banking to open finance becomes a reality.


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