Towards increasingly open financial services
Open Banking generally refers to the obligation under the Second Payment Services Directive (PSD2) for banks to open access to their customers’ payment accounts to the so-called third party service providers in order to provide a Payment Initiation Service (PIS) or Account Information Service (AIS). These services require the customer’s consent and take place through Application Programming Interfaces (APIs). Open Banking services based on customer banking data are only at the beginning of their development, as the European Commission aims to enable even wider use of data in the financial sector and other areas of society.
As distinct from Open Banking, Open Finance refers to the wider use of data in the financial sector. The exact meaning of the term is still evolving, but in most cases Open Finance refers to any non-PSD2 regulated digital financial services that use APIs for data sharing.
Open Finance services could be based for example on customer information from insurance companies, investment firms and other asset managers. Those using the APIs could also potentially be operators that would not be explicitly regulated or supervised unlike in Open Banking where the third party service providers are regulated and supervised entities. In such a case, agreements are likely to play a key role in organising relations between the parties.
Although there is no regulation on Open Finance yet, PSD2 is only the first step in enabling digital financial services through regulation. The Digital Finance Strategy published by the European Commission in autumn 2020 sets ambitious targets for the digitalisation of the financial sector. One of the priorities of the strategy is to create a European single market for financial data to foster data-driven innovation, the so-called Common European Financial Data Space, which will promote the availability and sharing of data in the financial sector. As part of the Digital Finance Strategy, the Commission has announced its intention to adopt an Open Finance regulatory framework by mid-2022.