Six months after Israel’s open banking legislation came into effect, the field is taking shape.
Like similar laws elsewhere, such as the EU’s second payment services directive (PSD2), Israel’s Financial Information Services Law (FISL) gives big banks a mandate to share consumer data with third parties.
Following in the footsteps of PSD2, lawmakers in the country are also discussing a similar move to open up payment initiation, paving the way for a far greater range of non-bank payment service providers to flourish.
The FISL sits among a range of reforms being undertaken in Israel with the intention of opening up the country’s financial infrastructure and increasing competition in the provision of financial services.
The first of these reforms was an amendment to Israel’s banking law which came into force in September 2021. That amendment required banks to allow customers to switch more easily from one financial service provider to another without incurring costs.
As a result of Israel’s banking reforms, banks and credit card companies were required to create an online system that today enables consumers to transfer their direct debits from one provider to another and easily route any debit or credit request from their old account to their new one.
A year after the initial implementation of the amendment, the Bank of Israel (BoI) announced that about a million transactions had been successfully facilitated by routing requests from one account to another. To further ease account switching, the BoI has now asked banks to enable the same easy-switching function via their mobile apps as well as the online system.
In the BoI’s latest initiative to open up Israel’s payment systems, it directed the operators of the country’s main payment systems in November to share a timetable for opening up their infrastructures to non-bank entities, including FinTechs, credit and savings associations and other relevant financial institutions.
Under the new open banking regime, a more diverse group of financial service providers will be able to connect to clearing and settlement systems which previously only traditional banks were plugged into.
With a number of regulatory initiatives converging to empower FinTechs and alternative providers to break a handful of banks’ stranglehold on the provision of financial services, Israel’s nascent open banking ecosystem seems to have much to look forward to in 2023.
Open Banking Knock-On Effects
As it has in Europe, the emergence of open banking will likely have knock-on benefits for Israel’s wider economy. And although the country seems to be embracing open banking only now, Israel is no stranger to FinTech innovation.
Overflow from the country’s world-leading cybersecurity industry and increasingly collaborative trade relationships with its Middle Eastern neighbors are also helping Israeli FinTechs grow and evolve.
Moreover, with the regulatory groundwork for non-bank players to enter the country’s payments market laid, those FinTechs appear better-positioned now to build solutions for Israeli consumers.
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