Open banking, or PSD2 as its known in Europe, is a new set of regulations which started coming into effect last year which allow third party technology companies and other fintechs to access banks’ customer data provided they have customers’ permission.
It has been shaking up the retail banking market by encouraging new apps from challenger banks and fintech firms that help customers manage their finances more easily.
Big tech is also getting in on the action, with the likes of Amazon looking to use open banking to make more informed lending decisions to bolster its relatively small lending business. Such access via the use of APIs would allow Amazon to see information such as repayment histories and income from other online marketplaces.
There are some examples of banks using APIs to get their own data back again. Arguably without open banking, the data would remain unutilised and banks would never have been forced to innovate in this way. Fundamentally, the data belongs to the customer, not the bank, and open banking offers customers new ways of using this data with the help of fintechs.
However, as banks already hold this data they too have the opportunity to out innovate the tech giants and start ups – how much runway do Amazon, Monzo and the other startups have for what they do? Should bank data sharing be extended to other sectors and allow banks to get data out of big tech ?
Amazon is “not there yet”, but the suggestion that the tech giant is experimenting with PSD2 is likely to alarm banking executives, who have previously complained that the rules give big tech groups an unfair advantage. Earlier this month, Banco Santander announced a partnership with Amazon’s rival eBay, highlighting the perceived potential in combining data from banks and tech giants to create more efficient or personalised products.