Open Banking: The Global Race To Digital Inclusiveness

20 May, 2020 . 4 minutes
Sam Mahony



Integration is key to digitization - and it’s not just Fintech companies that have embraced it. Financial institutions like banks are now adopting the integrated concept as well. Banks are becoming more accessible and welcoming in a new era of client relations: open banking.

In theory, 2020 should be open banking’s year, but it remains under scrutiny as the focus turns to reinforcing local ecosystems in the current crisis. With the Covid-19 pandemic, banks are focused on gaining user trust and capitalizing on the relentless demand for data ownership.

Open banking allows customers to share personal data with third parties under an agreed process. It applies open APIs created by banks for companies to securely access and integrate data with their platforms. The sharing concept is not new, but in the banking sector, it currently extends to cover two forms of service providers: payment process and account information.

Basically, open banking means people can develop apps and systems that use bank data - this means user-friendly tools for analysis and financial planning as well as greater overall transparency.

Frontrunners in open banking like the UK, Australia and the EU set up the initial standards while South Africa, Latin America and Asia are following to adopt the solution. As of October 2019, there were 188 regulated open banking providers, contributing to 180.6 million API calls, and by January 2020, another 200-plus providers joined the ecosystem and over 200 million API calls were made.

Since open banking is still in its infancy, adoption levels range due to different market dynamics and regulations in each country or region. With Covid-19, regulators have made standards focus on being helpful rather than innovative.

Standardisations are coming in to keep banks, third-party providers and consumers as safe and secure as possible. Rules like the revised Payment Services Directive (PSD2) and the General Data Protection Regulation (GDPR) have existed for years in some regions but online transactions and data privacy now require extensive consideration as global business moves indoors.

As standardisations become the priority, the obligation to expand service scope and inclusiveness comes under scrutiny. Dutch digital consultancy firm Innopay says pioneer countries like the UK set the benchmark, mostly based on standardised groundwork. Now other countries are following suit, setting up the right standard has become one of the main principles of open banking besides inclusiveness and a variety of available data.

Accelerated Interest

Globally, open banking is far from settled. Regulations are still under development in most countries, leaving a lot of parties with a stake in fast-tracking their creation. As more industries open up to save themselves from the economic fallout, the situation could change rapidly.

The race now is not only for customer data and technologies but also for survival in the market. Over 10,000 banks in more than 50 countries are implementing open APIs. 87 percent of all countries apply a form of Open API activity, which could potentially lead to an explosion of open banking.

The phenomenon is real and the pressure is even more real with the economic toll of lockdowns. Big and small banks are charging into open banking to get the most end customers and compete with financing providers powered by tech moguls like Google, Amazon, Facebook and Apple.

ERSTE Bank Group has developed a series of APIs that exposes their financial products to third parties and integrates them into other platforms and ecosystems. Starling Bank offers an option of marketplaces for customers to access, creating a platform for supply and demand.

OCBC and DBS continue to upgrade their APIs to offer a vast range of payment methods. Bunq has come a long way, considering its limited product but high integration of API functionalities to provide developers access to every option in its product portfolio.

Innovation may not share the same priority status as data acquisition and security for these large players, considering their established status. For small players, however, to go beyond these main pillars could be either a breakthrough or downfall: it is a roll of the dice.

RBS-backed standalone digital bank Bo is a cautionary tale. The general idea was to launch an app-based account with a dedicated payment card, but the bank fell short of the required standard regulatory conditions and selling point, falling victim to the already-crowded UK digital banking market.

Final Goal

Open banking's main goal is the global formation of an ecosystem that seamlessly delivers personalized services and digital experiences to integrate banks and companies worldwide. Using open APIs, open banking has the technological backbone to integrate with various third-party and payment services on a single dashboard.

The race among banks, however, will be challenged by the coming months of recession. Creating inclusive ecosystems and aggregators may not be the only instance of open banking. It is probably not as crucial as standardisations to stay afloat during the pandemic.

Given banking’s dynamic climate, there’s currently no one-size-fits-all solution to revolutionize open banking. Banks can either develop their own ecosystems or integrate with existing ones. Either way, open banking is a growing global force as we continue to unveil a new world of rich, interconnected digital inclusiveness. Still, the question remains whether it is a stop on the track or a detour.




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