Europe’s fintech sector believes that the big banks have been using their lobbying power to block changes in the balance of power between the old and new worlds of finance, according to a report today in the Financial Times.
More Power to Banks
The EU’s second payment-services directive, known as PDS2, was created to promote competition in the name of ‘open banking’ by forcing banks to allow third parties, including fintech companies, to access the data of customers who authorise it.
In return, the fintech groups would face greater regulation, specifically over data protection, in order to boost user confidence in the legitimacy and reliability of the services.
However, fintech bosses believe that PDS2, which is currently being finalised by European Banking Authority regulators, gives the banks too much power. Some members of the European Parliament, which supports open banking, also share their concerns that the banks appear to have influenced the EBA standard and that there should be “a level playing field promoting innovation and business model-neutrality, and competition in the market”.
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Fintech innovation has seeped into the banking industry with companies such as Paypal and Transferwise allowing customers to check their accounts and make payments with little direct contact with their lender.
European fintech groups are banking on an opening up of the customer data held by banks to propel their digital businesses into the mainstream.
However, banks have urged regulators to tighten privacy and data protection rules for fintech firms to prevent customers’ financial data being abused or stolen by cyber criminals. This has fuelled fintech industry fears that the banks would be given too much control over the channel by which competitors would access bank customers’ data.
Ahmed Badr, head of legal at GoCardless, a UK digital payments provider, told the FT that if the bank lobbying succeeds, it could restrict the access that fintech firms have to their customers’ data, such as by limiting the number of balance enquiries a fintech company can make each day. This could cripple some start-ups’ business plans.
The EBA has said that safeguards will be built into the rules to ensure that fintech companies are not discriminated against. The agency will submit draft technical standards to the European Commission this month, after which it will decide how to proceed.