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New rules to require banks to open up their systems

New rules to require banks to open up their systems

Your bank account is set to get more secure – and more open – once new European regulations come into force in September.

The second Payments Services Directive aims to reduce fraud around online transactions. This will likely see consumers having to take more steps to verify their identity online.

But the rules will also require banks to open up their systems, so that other finance and technology firms can offer services to customers.

“Opening banking is a safe and secure technology that will allow customers and small businesses to get more value out of their banking data and their banking payments,” said Imran Gulamhuseinwala, head of the UK’s Open Banking Implementation Entity.

“Banks have historically made it really quite hard for consumers and small businesses to access their data, and also to make payments from their bank accounts,” Mr Gulamhuseinwala said.

“What this regulation really recognises is that there is tremendous value in people’s banking data – and crucially that that data belongs to them and not to their financial institution,” he added.

In practice this means that, by mid-September, Europe banks will need to offer a route through which other companies can offer their services.

This could mean, for example, that a user will be able to use an app to get an overview of multiple accounts.

It could also allow budgeting software to pull in information directly from a user’s accounts, rather than having to rely on that being done manually.

In reality, though, open banking is about creating a framework for new types of services – which means its actual benefits may not become apparent for some time.

“It’s a seismic change for the banking industry but it will take time for consumers to really realise the benefits of it,” Mr Gulamhuseinwala said.

“The reason for that is that open banking is an enabling technology that allows other new entrants into the sector – they’re often known as FinTechs – to build really exciting new propositions and products for customers.”

However some banks may be struggling to get to grips with the change – and that September deadline may prove difficult. For others, however, the shift should come a little easier.

Whether banks are actually keen on the new rules is another matter, however. “Part of the reason that the regulators are pushing on opening banking is precisely because they want to bring additional competition to the market, and of course additional competition doesn’t always serve incumbents well,” he said.

“The kinds of products we’re really expecting customers to benefit from, on one level, are enabling them to get better rates on mortgages, credit cards, overdrafts, better rates on savings… but of course that is something of an economic threat to the incumbent banks.”

But Mr Gulamhuseinwala is confident that it will improve competition, opening the door to new firms while also forcing traditional players to improve their offering.

A lack of competition is often cited as a major problem within the Irish consumer finance sector – as is the matter of culture within banks.

That is something that the industry is hoping to address through the Irish Banking Culture Board.

Headed by retired Court of Appeal judge, Mr Justice John Hedigan, the board is industry-funded but independently operated. It also has no regulatory powers, which is a different approach to the one taken by the UK.

“I think it’s really interesting, the initiative that is happening in the Irish market, and I’m very supportive of it,” said Mr Gulamhuseinwala.

“In the UK… we’ve separated out regulation. Conduct regulation sits with the FCA and then prudential regulation, which sits with the Bank of England.

“That separation really does allow the regulators to look very differently at those two elements. Sometimes they can actually be in conflict and I think it’s very important that the culture in the industry recognises some of the inherent conflicts,” he added.

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Fee increases will be critical for Irish banks – S&P

Fee increases will be critical for Irish banks – S&P

Increasing fees and commissions will be critical for Irish banks in the coming years, in order to offset pressure on the difference between the amount of interest they earn versus what they pay out to those lending them money.

That’s according to ratings agency S&P Global Ratings, which says it does not expect banks here to be able to expand their net interest margins further, given competitive movement in the markets, low interest rates, and gradual build up in banks’ stock capital buffers.

In a research note on the Irish banking system, the agency says the concentration in real estate and extent of existing tracker mortgages means the quality of the sector’s loan book is typically weaker than in many other EU states.

It says the use of money set aside for losses has in the past helped to support losses, but this benefit is not likely to continue.

It also cautions that it does not expect a material improvement in earnings this year, because of limited revenue diversification and high cost bases

S&P says capitalization remains at levels that are relatively strong.

However, the agency says capital is set to decline a little as loan books expand and dividend distribution policies remain the same..

Overall though Irish banks have demonstrated stability, the organisation claims, despite internal and external challenges.

Their credit profiles have improved materially in recent years, it says, as a result of better economic conditions, placing them in a stronger position to absorb future shocks, like Brexit.

Non-performing loans will continue to fall this year, it predicts, and near-term profitability to remain stable.

As a result, it says short term upgrades to Irish banks are most likely to be based on their improved additional loss-absorbing capacity, it says.

It claims Bank of Ireland has demonstrated a superior track record around the quality of its assets compared with other peers in the market here.

As a result, it says, the positive outlook for the bank suggests it may change the rating on Bank of Ireland to bring it in line with the higher ratings on its international peers.

On Ulster Bank, it says, the positive outlook reflects that of its parent company, the Royal Bank of Scotland.

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