Since January 2018, when the UK embarked on its open banking experiment, we have heard a lot about it. Now the regulation is almost two years old, we believe that there have been visible changes in the financial landscape, especially for big banks and firms willing to penetrate the fast-growing market.
When it comes to banks, according to the Open Banking Implementation Entity (OBIE), 40 further banks have adopted open banking standards in addition to the nine mandated banks (the CMA9). OBIE also revealed that it has 118 regulated organizations in the open banking ecosystem with 200 waiting to join (source). As for Third Party Providers (TPPs), according to the Financial Conduct Authority, more than 100 firms have registered so far.
Open banking has brought significant propositions in the market, which were almost impossible to believe two years ago. The entrance of TPPs capitalizing on technology and bank data to offer financial services has become one of the greatest achievements of open banking. The use of open APIs to share financial data from a bank to TPPs has helped them to offer customized financial products and services.
Another significant advantage of open banking in the finance market is the introduction of AISPs and PISPs:
- AISP or Account Information Service Provider is any business who can connect to a bank account and the user data to provide services such as aggregating financial data for a coherent view, tracking customer’s spending pattern, and planning their finances.
- PISP or Payment Initiation Service Provider is any business who can connect to a bank account and initiate payments on behalf of the consumer, directly from their bank account.
In order to leverage the benefits that open banking offers, many banks and financial institutions have launched their open banking platforms. HSBC launched Connected Money app in 2018, which enables users to access multiple bank accounts under a single roof. Another giant, MasterCard, launched a program called ‘Open Banking Solutions.’ The offering by MasterCard is designed to support open banking efforts in four major areas: connectivity, safety and security, dispute resolution, and consulting services.
The effect of open banking has initiated widespread changes in the lending industry as well to promote innovation, provide more secure payment, and cut down cost. Peer to peer lending platforms like Zopa have embraced various aspects of open banking with the aim to make services personalized to meet customer needs. In the coming years, the potential benefits could go beyond the introduction of new services, altering the current processes to be more digital, less expensive, and consumer-friendly.
From the consumer perspective, open banking still seems to be plagued with certain problems. According to research by CREALOGIX Group, 46% of the consumers are concerned about the security implications of open banking, including identity theft and data breaches. That leads to the biggest challenge for Open Banking at present, which is a lack of information amongst the consumers.
However, the advantages of open banking for consumers seems steady and clear as of now. Consumers will have greater control over their financials, and banking data will be used, by whom and when. New partnerships amongst banks and Fintech firms will spark innovation in financial and payment services, ultimately benefitting the end-user.
Despite the concerns related to security and the unwillingness of banks to share data with TPPs, the new ‘open’ approach towards banking and financial services is benefitting consumers and businesses in various aspects. Moreover, the UK was amongst the first countries to develop open banking standards. It has also inspired other countries including Australia, Japan, and Singapore, to embrace the regulation and develop policies to encourage adoption amongst banks and customers.
Embracing open banking and API integration means that banks and financial institutions across the globe can – transform quickly, build products and services to meet customer demands, and advance their customer experience efficiently.