Fintech Revolution Still Not Here a Year Into ‘Open Banking’

(Bloomberg) -- When European lawmakers ushered in the era of "open banking” for consumers one year ago, both lenders and financial technology startups expected a sea change. For the first time, banks would be required to share account data with competitors as long as customers gave their permission.

Politicians in the U.K., where four banks control 75 percent of deposits, were particularly keen on the law’s goal of encouraging new entrants.

But since the European Union implemented the rules, dubbed Payment Services Directive 2, Jan. 13 last year, banking in the U.K. looks pretty much the same. HSBC Holdings Plc, Barclays Plc, Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc show few signs of losing significant market share on current accounts, business loans, and mortgages to the upstarts. Only four new banking licenses were issued in 2018, compared with 12 in 2017, according to the Financial Conduct Authority.

“The U.K. still hasn’t seen the hockey stick of growth in disruptive new players everybody was predicting,” said Anne Boden, the founder and chief executive officer of Starling Bank Ltd., a London-based digital bank with 400,000 account holders. “Everybody was expecting PSD2 to happen and all these companies would be fighting with each other to provide services to customers.”

Mastercard Inc. and Visa Inc., as well as the longstanding lenders, continue to control the payment infrastructure. Indeed, these institutions are starting to go on the offensive by snapping up fintech firms. On Dec. 27, Visa’s international subsidiary agreed to buy London-based cross-border payments firm Earthport Plc for 198 million pounds ($252 million).

Even so, research released today shows that bankers at Barclays, RBS, and other lenders are anxious that in time the new payments law will shake up the industry. In a survey of 50 executives in Britain, a majority said the legislation will spur technology giants such as Amazon.com Inc. and Google to unveil their own retail banking services within the next five years.

More than 82 percent of those polled say their organizations are falling behind mobile banking players such as Monzo Bank Ltd., Starling Bank, and Revolut Ltd. The research was commissioned by Pepper, a mobile bank owned by Tel-Aviv-based Bank Leumi Le-Israel Ltd.

Fintech Revolution Still Not Here a Year Into ‘Open Banking’

In September, European regulators are scheduled to complete new technical standards that will set out precisely how banks must link their technology platforms to outsiders. The hope is this process will truly cement open banking into place, said Starling’s Boden.

“What big banks have been asked to do is very difficult -- they don’t necessarily have a commercial reason to do this, they’re being forced to by a regulatory big stick,” said Boden. “But I do believe PSD2 and open banking will revolutionize the relationship between consumers and lenders. It just won’t happen quickly.”

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