What is Open Banking and What New Abilities It Provides?

For several years now, analysts worldwide have been arguing about the prospects for developing the Open Banking concept.


We decided to answer the most common questions about Open Banking once again succinctly:

  1. What is Open Banking?
  2. What is Open Banking Goal?
  3. Benefits of Open Banking for Consumers
  4. What is Open Banking’s background?
  5. Open Banking in different countries

Let's figure it all out.

What is Open Banking?

Open Banking is a concept in which banks "open" access to their customers' data for third-party services.

It is important to note that access to clients' data through the Open API is carried out only at their request and consent.


What is Open Banking goal?

Objectively, Open Banking has a few main goals, including the following:


1. Fostering innovation in the banking environment

This simultaneously pushes the industry towards hyper-relevant platform-based distribution and provides banks with rich opportunities to expand their ecosystems through the software development of new solutions.


2. Improving customer access to financial services

It is much easier and more convenient for the consumer to manage and control various services collected in one application.


3. Increased competition among financial service providers

Improves outcomes for consumers, giving them more choice and opportunity.


Benefits of Open Banking for Consumers 

Open Banking allows the user to speed up various transactions and enable the user to receive more good banking services.

Let’s see it in details.


1. Convenience when using different financial instruments

The Open Banking system will allow you to collect all the information about accounts, transactions and balances in one software application of a third-party provider. 

With this web application or mobile application, the client can pay for goods and services, create ready-made payment templates, use analytics and advice on managing funds, etc.


2. Getting better quality third-party services

For example, consumers no longer have to stand in long lines at specialised establishments for a certificate to prove a good credit history. Thanks to the data exchange, this inquiry, as well as the receipt of credit funds to your account, is just a few clicks away.


3. Access to additional banking services

Have you always dreamed of making a profitable investment? Open Banking software will provide the most favourable conditions for the purchase of securities! And not only.

For example, UK's Starling Bank offers its customers access to its "marketplace" where they can choose from a range of products and services to integrate with their accounts, such as travel insurance, mortgage broker, various retirement plans, and others.


What is Open Banking’s background?

The 21st century is marked by:

  •  a rapid leap forward in technology 
  •  the widespread expansion of the online space


Consequently, it became necessary to improve the competitive environment and allow users to access more and more diverse financial products online.


The only possible solution to implement this idea was the cooperation of traditional banks, which have a vast client base but do not have enough cutting-edge technologies, and fintech companies, which have such software development technologies but do not have a client base.


In 2015, the European Parliament amended the Payment Services Directive, now known as PSD2 ("Second Payment Directive"). According to it, banks must provide third-party organisations with access to information about customers they owned using the Open API (Application Programming Interface). 


API is the ability to "share" the interface and additional features for third-party software developers, integration partners and other ecosystem players.

Open Banking in different countries 

According to Juniper Research forecasts, the total number of Open Banking users in the world in 2021 will reach 40 million, which will more than double the indicators of 2019 (18 million).


Open Banking in the UK and EU

The United Kingdom is a pioneer in the implementation of Open Banking principles. A little later, the EU joined the initiative with the PSD2 directive. In 2018, PSD2 was incorporated into national legislation in Austria and Belgium. It broadened the scope of regulation of payment services and increased the reach of participants.


Open Banking in the USA

At the end of 2017, the National Automated Clearing House Association of the USA (NACHA) released an API standardisation program


It prescribed three areas: 

  1. reducing risks and fraud levels 
  2. data exchange 
  3. access to payments

The same year, the US Consumer Financial Protection Bureau (CFPB) issued data exchange guidelines that encouraged banks to adopt the API.


Open Banking in Australia 

Open Banking in Australia officially began in July 2019, when four central banks - Australia and New Zealand Banking Group, Westpac, Commonwealth Bank and National Australia Bank - exchanged product reference data voluntarily. 


Open Banking in Turkey

Open Banking in Turkey was first defined in the Regulation on Banking Information Systems, and Electronic Banking Services published on March 15, 2020, by the Banking Regulation and Supervision Agency (BRSA).


Open Banking in India

India launched the Unified Payment Interface (UPI) back in 2016. Initially, it was developed and now managed by the National Payments Corporation of India (NPCI).


Open Banking in South Africa

The prospects for fintech innovation are up-and-coming in South Africa as well. They are driven not only by market demand for innovative products and services but also by IT providers' ability to meet such demand.


In the context of the COVID-19 pandemic and connection with a decrease in the number of cash transactions, Open Banking's transition is significantly accelerating globally. Software development of new open banking applications becomes more popular.


API and Open Banking will significantly affect the banking industry and fintech companies' activities and make traditional banking products more manageable, convenient, and cheaper for the end-user.

Such changes will be expressed primarily in the emergence of new players on the market, which is already confirmed by world experience.

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