Beyond Open Banking and Data Privacy: watch out for FiDA
On July 3rd, 2024, our Chief Commercial Officer, Anne-Sophie Morvan, participated in a webinar organized by ERI and IBS intelligence, entitled “FIDA Unleashed – Beyond Open Banking and Data Privacy”. The session was moderated by Nikhil Gokhale (Director – Research and Digital Properties, IBS Intelligence) and also featured Alan Goodrich (Regional Sales Manager, ERI) and Ritesh Jain (Founder & Board Advisor, Infynit).
Alan Goodrich first took the digital stage, explaining the context behind the FiDA proposal, and highlighting that, according to a recent survey, the financial sector currently shows “limited readiness and even knowledge”.
The FiDA, PSR and PSD3 legislative package was actually published a little more than one year ago,
and the estimated time to enter into application is more or less two years. “It’s pretty short. And if it were to be adopted toward the end of 2024, or in early 2025, it is really not far if you consider all the challenges it implies,” added Alan Goodrich.
FiDA goes outside of the scope of PSD2 and therefore beyond payments accounts. Nowadays, there is no structural way of accessing and no way to grant access to the data. Moreover, it is important to keep in mind that it will “impact pretty much anyone who’s participating in the financial services world. And even new players, the FISPs (Financial Information Service Providers)”. It has specific objectives and notably to enhance customer trust by providing them full control over their data. In this respect, it implies significant changes in terms of customers data to be accessed, technical interfaces (APIs) and permission dashboards. Data holders will have to make data available when requested by the customers, in a standardized way, continuously and in real time. On the other hand, data users will only access data for the purpose they have been granted permission. “It will prevent the transfer of personal data when unlawful, ensure the security of the customer data, with several safeguards to ensure customer control,” explained Alain Goodrich.
Anne-Sophie Morvan explained that FiDA was about “accessing”, and not “sharing”. Open Banking in Europe, today, is mainly PSD2, with banks and EMIs having to provide APIs so that payment account data can be retrieved, and payments made: the scope is therefore limited. She added: “Open Banking can be far more than that. The European Commission wanted to have a whole strategy around all types of data, which was explained back in February 2020. And for this strategy to succeed, it is important to unlock the data”.
Today, a large set of financial data is accessed by third party providers through screen scraping, which has several downsides. “Now, the EU is pushing for a framework in the financial sector to open up that data and have more innovation, and also put customers at the center. This represents a key challenge for financial institutions as well as a lot of opportunities,” highlighted Anne-Sophie Morvan.
Ritesh Jain then explained that even if “Open Banking is around 7-8 years old, there are still some struggles and challenges”. Also, he underlined that banks do not own the customer data: it is owned by customers themselves, who now want to be in control. Open Banking was actually the first step and paved the way for Open Finance, materialized through FiDA. According to him, it will unlock the value proposition for the customer.
As underlined by Alan Goodrich, “the financial sector can sometimes be a little frustrating because it is known to be quite conservative and slow in adopting innovation”. He notably compared it with the e-commerce world, with giants offering great experiences, quick and painless onboarding, efficient product recommendations, seamless payments, and more. “As a customer, you might wonder: why can’t a bank do the same thing?”.
He added: “with FiDA, people are going to want to know the status of their funds, what is currently in their portfolio, etc. What’s its latest valuation? Currently, this side of custodian banking has been delay process-based”. According to him, APIs are just the tip of the iceberg, with data being the biggest challenge.
As explained by Anne-Sophie Morvan, “Some financial Institutions in Europe saw Open Banking as an opportunity to put more API products on the market, always based on the end-user’s permission. And there have been several institutions – a minority – that have already opened more than their payment accounts”. But more structure is needed and putting in place a robust API platform will enable FIs to monetize their Application Programming Interfaces.
The EU decided to move forward with it, and in other jurisdictions, notably Australia and Brazil, Open Finance frameworks are also coming up (or are already in place). “Sometimes, a push from the regulator is necessary. And in the context of FiDA, the industry will have an important role, notably in setting up the financial data access schemes,” she highlighted. These schemes will define the maximum compensations that data holders can request, and a lot of discussions are currently going on regarding this topic.
Ritesh Jain insisted on the need for standardization in Open Finance, “for instance API, and it will come down to data security and data portability”. He also sees many opportunities for service providers. He added: “Open Finance in itself is a phenomenal task”.
The one thing to watch out for with FiDA
According to Alain Goodrich, “some banks are struggling with old spaghetti, and others are struggling with new spaghetti. But it is still spaghetti, meaning that most banks are facing challenges with their core systems. I see a wave of core system replacements, as Open Finance requires strong foundations”.
Anne-Sophie Morvan will keep on watching for the financial data access schemes, which will determine the Open Finance standards. “What will be the exact data scope? What will happen with compensation? There are a lot of questions that are still unanswered, and it is up to the industry to define what Open Finance will become,” she concluded.
Finally, Ritesh Jain focused on data security. He underlined: “FiDA is a double-edged sword. It opens the door for innovation but has risks. The financial institutions that will master it will flourish”. He then highlighted the need for greater customer literacy: “a lot of education is required for customers and for Open Finance to become successful”.