Financial Conduct Authority, on the 2 Key Initiatives to the Era of Open Finance

Following the Part 1 interview of the Financial Conduct Authority, Maha El Dimachki, Head of Payments of the FCA reveals some of her key initiatives in the FCA, including the significance of the second Payment Services Directive (PSD2) among the EU countries and the rationale of the Stronger Customer Authentication. As Co-Chair of Spectrum, the BAME Network Group at the FCA, El Dimachki also provided some advice for women in FinTech!

You were heavily involved with the delivery of the second Payment Services Directive (PSD2), could you tell us more about the objective of this directive and why it was highlighted as a revolutionary implementation for the EU?

PSD2 is intended to build on the success of the original Payment Services Directive in opening up competition in the provision of payments, promote innovation, and make payments safer and more secure. The new regime came into effect on 13 January 2018. We are already starting to see its impact on the number of new and innovative business models launching in the UK, and changes to how we as consumers make payments.

PSD2 further promotes competition and innovation through the introduction of two new regulated activities - Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs). AISPs include account aggregation services aiming to help consumers manage their finances by bringing all of their bank account data together in one place. PISPs allow consumers to pay for goods and services online by sending money directly from their bank account, without using a credit or debit card.

We have seen quite a number of propositions coming through our sandbox that has taken advantage of the introduction of PSD2 and it is an area with immense fintech activity. The market sees this as just the beginning and this has the potential to move from a world of open banking to open finance and possibly open data.

Another project you have spearheaded is the Strong Customer Authentication? How does this process differ from traditional authentication and why is it necessary?

PSD2 introduced new requirements intended to make payments safer and more secure. The new rules, referred to as Strong Customer Authentication (SCA), are intended to enhance the security of payments and reduce the risk of unauthorized transactions.

As consumers, we are becoming increasingly familiar with the introduction of two-factor authentication in different aspects of our lives. SCA requires the adoption of two-factor authentication when making payments and accessing online/mobile banking. Customers must successfully authenticate using two of three possible factors.

Something you are (inherence), something you know (knowledge) something you have/own (possession).

Technology will play a role in making authentication solutions as frictionless and efficient as possible for consumers. However, as with all digital innovation, technology may not work for everyone. We have been clear that firms must implement SCA solutions that work for all their customers.

Firms were required to comply with the new requirements on SCA from 14 September 2019. However, we recognize that some payment journeys are more complex than others, requiring industry-wide changes to deliver effective solutions that work for all. We have provided the industry with extra time to implement SCA for card-not-present e-commerce transactions due to the significant risk of disruption to customers and businesses. The industry has until March 2021 to test and implement solutions for SCA for card payments when shopping online. We expect firms to develop strategic solutions and are monitoring progress closely.

As Co-Chair of Spectrum, the BAME Network Group at the FCA, you support and foster D&I, what advice do you have for women and especially young women regarding the FinTech environment?

The FCA believes that the value of diversity and inclusion can be seen in the decisions that businesses make so it’s vital in terms of how we regulate the conduct of the industry. We realize we have a responsibility to lead by example within the financial services sector, highlighting diversity and inclusion as an integral element of good conduct. We want to work closely with firms across the sector, both to share our insights and to learn from what others are doing.

Personally, I am passionate about diversity and inclusion and believe that when you have a diverse team that brings their whole selves to work and feel comfortable in being who they are without feeling pressure, prejudice or simply out of place is an incredible strength to any team. The loyalty, motivation and ultimately productivity that we see achieved is invaluable.

This is how I aspire and challenge myself to lead my team but it is also where my role as co-chair of our BAME network group comes in. So, what I say to women or those who identify as BAME or LGBTQI or any other protected characteristic is don’t hide who you are, be the best version of you that you can be, be open and willing to share your experiences and create a positive and inclusive dialogue around these topics but most of all, support one another. We cannot advance a D&I agenda if we aren’t all in it together and we are bought into the story and the journey. We will continue to chip away and we will make more and more progress. One day, women will not be afraid to dream big and achieve.

Beyond your own projects, are there any other FinTech initiatives that have you excited?

Of course, an increasingly high trending topic that I’m excited to see develop is open finance. Why? Well not only does it build on the benefits already provided to consumers and businesses through open banking, but it has the potential to go further, transforming the way consumers and businesses currently interact with financial services. As open banking-like access extends beyond payment accounts to a wider range of other financial products, we could see a number of developments across industries being led by consumer-centric innovation.

This is a real opportunity for FinTechs to be at the forefront of this innovation and dictate the pace of development. For a long time, the big players in the market have held the valuable asset of customer data and have benefited from the mass market presence. But there’s been a gap for new services to emerge which add value to customers’ financial lives, using their data. FinTechs have the agility to bring these services to customers but need scale. Open finance is an exciting opportunity for FinTechs. They could harness the rails that have been delivered through open banking to gain access to a wider range of financial product and consumer data. They could partner with larger firms to reach customers on a mass market. Whatever angle you look at it from, there is a role for FinTechs in the open finance ecosystem and we see this as a place for them to flourish while delivering invaluable consumer benefits.

And what makes open finance such a fertile ground for this type of innovation? For me, part of the answer lies in the great opportunity for consumers and businesses to have control over their own data and make it work for them in a digitalized world. FinTechs could drive this consumer empowerment by accessing consumer data with consent and in a secure environment, to provide consumers with a holistic view of all their financial products they hold in one place, showing them for the first time their total net worth. But open finance isn’t just about ‘knowing your worth’, it’s also about being empowered to make better informed financial decisions and improve your financial wellbeing.

We’re publishing a call for input at the end of the year which sets out our vision on open finance, it’s benefits and what it could deliver. We’d encourage you to read it and respond.