The first phase of the open banking reform will take effect tomorrow (Tuesday) and for the first time, customers will be able to transfer information to fintechs on current accounts and credit card charges. This will allow financial entities to give better value propositions to customers. Conditions that will strengthen customers vis-à-vis financial entities, promote the entry of fintechs into the market, increase competition in the banking system and reduce household and small business expenses in the banking system.
One of the significant barriers to increasing competition in the banking system in particular and the financial system in general is the monopoly held by financial entities over the financial information of their customers. The Financial Information Service Law, which was previously part of the latest Arrangements Law, requires various financial entities to transfer customer information to competitors and innovative technological entities (fintechs), with the consent of the customers.
According to the law, fintechs that want to do this will have to obtain a dedicated license from the Securities Authority, which will oversee the fintechs for information security, consumer protections and more. The new entities will be able to show clients what financial services they consume, exactly how much they are paying for them, how much they can save if they switch to another provider and actually become their objective, personal financial advisor.
Later in the year, the second phase of the reform will take effect, and customers will be able to transfer information on credit and deposits from banks and credit card companies to fintechs. Information on small businesses, securities and credit from non-banking entities will then also be transferred.
Finance Minister Avigdor Lieberman said: “Starting tomorrow, the power will go to consumers. Open banking reform transfers power from the bank to the customer and will significantly increase the connection in the banking systems in Israel. We will continue to remove barriers and open the economy to competition.”