There are a couple of incoming regulations that could affect the UK open banking market over the coming months. In this blog we take a look at each of them and how they could affect your business.
Revised payment services directive
One of the regulations that could have a significant impact on the UK open banking sector is the revised Payment Services Directive (PSD2). This directive requires banks to open up their payment infrastructure to third-party providers, allowing customers to access their account information and make payments through these providers. This could lead to increased competition in the market and provide customers with more choice and convenience. However, it could also raise concerns about data privacy and security.
General data protection regulation
Another regulation that could have a major effect is the General Data Protection Regulation (GDPR). This regulation aims to protect the privacy and personal data of individuals. It could lead to stricter requirements for consent and data sharing, which could impact the way open banking operates. Companies will need to ensure they are compliant with GDPR to avoid hefty fines.
Over the next 18 months, we can expect to see knock-on effects from these regulations. There may be a rise in the number of third-party providers entering the market, offering innovative services and products to customers. We may also see increased collaboration between traditional banks and fintech companies, as they work together to navigate the regulatory landscape and stay competitive.
Effect of incoming legislation
The impact of incoming legislation may differ for small and medium-sized businesses (SMBs) compared to larger companies. SMBs may face more challenges in adapting to the new regulations due to limited resources and capabilities. They may need to invest in new technology and processes to comply with the regulations, which could be costly. Larger companies, on the other hand, may already have the resources and infrastructure in place to comply with the regulations more easily.
Open banking-driven digital payments
The use of open banking-driven digital payments for public services, as proposed by the UK government, has both pros and cons. On the positive side, it could increase efficiency and convenience for citizens, allowing them to make payments for public services more easily. It could also lead to cost savings for the government. However, there are concerns about data privacy and security, as well as the potential exclusion of those who do not have access to digital payment methods.
GOV.UK Pay system
The GOV.UK Pay system has been seen as a success by some industry professionals. It has provided a secure and convenient way for citizens to make payments for government services. However, there is always room for improvement. Some professionals may suggest enhancing the user experience, streamlining the payment process, and ensuring compatibility with a wider range of devices and platforms.
The discussion around whether large financial institutions will ditch outdated credit checks and embrace Open Banking for credit scoring is ongoing. While there have been advancements in this area, it is not yet widespread.
The use of Open Banking for credit scoring could provide fairer and more accurate affordability decisions, but it requires trust and collaboration between banks, fintech companies, and regulators. It is difficult to predict when this will become the norm, but industry professionals are hopeful that it will happen in the near future.
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