Jonathan Middleton, Manager, Technology and Digital
Policy Delivery Coordination, UK Finance
Recently, at an event held by the Institute of International Finance, there were further calls to authorities to protect customers as technology firms take on a greater role in the processing and management of money. There were also calls for greater reciprocity of data sharing across the finance and technology sectors under new ‘open banking’ regulations, with the introduction of a ‘single legal framework for data’.
The Second Payment Services Directive (PSD2) is a fundamental piece of payments related legislation in the EU which provides the legal foundation for what is called ‘open banking’. It will enable appropriately regulated third parties to give more accurate personal financial guidance, tailored to customers’ circumstances, and initiate payments on customers’ behalf, all delivered securely and confidentially.
Technology companies are playing an increasing role in how consumers manage and spend their money. Many have begun to offer tools and products such as ‘wallets’ and payments, through which consumers can access a range of financial services. In China, Tencent and Alibaba both play a major role in the domestic retail payments market, and Facebook received an e-payments licence in Ireland in late 2016 to enable payments through its Messenger app.
However, there are concerns that these technology companies are not governed by the same regulations as financial institutions, even though many of the products and tools appear similar to those of traditional banks.
The advent of ‘open banking’ has seen third parties, such as tech companies, develop new products and services using customers’ data. European banks have raised the issue that these third parties are able to use work done by banks, such as compliance checks, when developing and delivering products.
In response to these concerns, there have been calls for a ‘single legal framework for data’ to support customers by standardising how they can control and share their data across the technology and financial sector.
Calls to regulators have been increasing and reflect concerns about the growing disruption to the traditional financial sector by technology companies around the world. Consumers expect a smooth and seamless integration of their finances with hardware and software tools, such as their phone, or their online shopping platforms. On the other hand, consumers also want their money to be managed responsibly and safely. Governments and regulators are also keen to support innovation in the sector and will be anxious not to overregulate unless there are risks to safety and competition.
The public debate on this issue has only just begun. Calls for greater oversight and standardised regulation are likely to continue as the evolving technology – and adoption by consumers – continues to disrupt the finance sector. There is now an opportunity for banks, technology companies and regulators to work together in this evolving context to stimulate innovation, maintain competition, and above all, protect customers.