There's a storm brewing in the banking world as companies brace for a huge shakeup in the financial services industry.
Open Banking, which forms part of the revised Payments Services Directive (PSD2), is a new digital standard that aims to make it easier for people to switch current accounts, among other things.
But there are concerns that the new regulation could be too ambitious, particularly bearing in mind that the banks are already set to tackle numerous regulatory changes next year.
Not only is PSD2 on the horizon, but 2018 is also the year when Mifid II and the General Data Protection Regulation come into force. The Commercial Credit Data Sharing scheme, which will force the banks to share credit information on their SME clients, is also set to be fully implemented in January.
The scheme aims to level the playing field by encouraging non-bank lenders to provide more funding to businesses. This is no easy feat, and the question now is whether the banks will be able to meet the mass of looming regulatory deadlines.
The big banks must comply with Open Banking as early as 13 January, and while it will only cover current accounts in the first instance, it’s set to eventually cover all payment accounts, such as credit cards.
The new rules are designed to give banking customers – which include businesses – more control of their financial data, allowing them to share it with organisations other than their banks, therefore opening up opportunity for fintech firms.
But the Bank of England governor Mark Carney has suggested lenders aren’t taking the threat of fintech seriously enough, which means they could see the rug pulled out from under them as smaller “underdog” firms start taking more market share.
However, research from Accenture in October found that 69 per cent of British consumers wouldn’t want to share their bank account information with third-party providers.
In fact, more than half said they will never change their existing banking habits and adopt Open Banking. It is clear that companies are facing an uphill battle, both in terms of implementing the new rules, and building customers’ trust.
The rules could be a saving grace for SMEs that have struggled to get loans from the big banks, but if Open Banking doesn’t take off as people expect, it could end up being nothing more than a red herring.
Peter Alderson, managing director of small business finance provider LDF, comments:
“As the target date for Open Banking nears, it still feels like there is much to do, in respect of broadcasting the true benefits of the changes to small business. Solutions needn’t be restricted to those looking for new finance, but instead play to the broader benefits of those who want to remain with a provider they trust.
"To many, it may still appear a little ‘Big Brother’, in reality however, it is set to bring about wholesale improvements to many of the data exchanges currently used.
"Ultimately it will provide small businesses and consumers with much greater controls over who their data is shared with, and that is surely something to be embraced.”
Thousands of SMEs have been stunted by the lack of support from the big lenders, and many are desperate for disruptive forces to shake up the industry.
The government is facilitating that through this new regulation, but the question now is whether the plan will go ahead as expected, and if banks will be able to weather the storm as a result.