Open banking—

A bird's eye view

On January 13th 2018, Open Banking was officially launched in the UK and the revised Payment Services Directive (PSD2) came into force in Europe.

Since then a steady pipeline of new entrants have arrived in the open banking ecosystem developing compelling and innovative propositions that will ultimately help customers move, manage, and make more with their money.

Open banking initiatives so far

  • Yolt’s API connections: The Dutch bank ING`s Yolt became the first 3rd party provider to implement successful API connections. The service links over 25 banks and institutions that include the Lloyds Banking Group, RBS, and HSBC brands, as well as challenger banks Monzo and Starling.
  • HSBC launched the Connected Money app in May 2018. The apps allow customers to see all of their current account, savings and mortgage accounts across 21 banks, including Santander, Lloyds and Barclays, in one app.
  • Citi joins open banking: June 2018, Citi became the first corporate bank to join the UK’s Open Banking framework to provide an aggregated payments collections service for its business clients.
  • Nordea brings open banking to Sweden: In September 2018, Nordea extended open banking to Sweden, giving developers the possibility to begin building applications designed for both Finnish and Swedish customers. More than 2500 developers have registered to test Nordea’s APIs. The work is ongoing now to extend the services to Denmark and Norway.
  • Barclays launched an account aggregation feature powered by open banking. Barclay’s API initiative provides access for consumers to vendors registered with the FCA in the UK. Access is via mobile device or web.
  • Northern Ireland’s first open banking feature: Danske Bank became the first of the Northern Ireland banks to introduce an open banking feature within its mobile banking app. Customers of Danske who have a personal current account with Santander can choose to view their Santander balances and transactions when they log in to Danske’s New Mobile Bank, giving them a clear view of their money without switching between apps.
  • Metro Bank forays: In July 2018, Metro Bank launched its own API developer portal to FCA-registered third parties.
  • Klarna’s open banking platform: In March 2019, Sweden’s Klarna Bank announced the launch of its own open banking platform, which would allow access to more than 4,300 European banks through a single Access to Account (XS2A) API.

In September 2018, the Open Banking Implementation Entity (OBIE) announced the Open Banking Standards, version 3. It covers all products with payment capabilities and include the following core components:

In September 2019 the Regulatory Technical Standards (RTS) came into force under PSD2. They mandate all the banks across Europe provide online payment services to comply. This is to be done either by implementing a dedicated interface (API interface) that meet requirements or must provide an updated version of their existing customer interface.

Open Banking July 2019 Updates

Open banking has gone global

CANADA

  • The Department of Finance Canada launches Advisory Committee on Open Banking

UNITED STATES

  • OCC explores a "fintech charter"
  • OCC issues conditional banking charter

MEXICO

  • Mexico passes “Fintech Law” and requires banks to establish open APIs

LATIN AMERICA

  • Brazil’s central bank issues new banking rules
  • Chile regulators follow Brazil’s lead
  • Peru drafts first Fintech Bill
  • Argentina tries to follow Peru’s lead

AUSTRALIA AND NEW ZEALAND

  • Australia Securities and Investment commission (ASIC) openly endorses open banking guidelines
  • Open banking put on hold in January 2018 by the federal government

EUROPE

  • In January 2019 the FCA reported 80 TPPs registered
  • As of September 2018 there were 17.5M monthly open API calls
  • Both the EU’s (PSD2) and UK’s Open Banking Framework went live

ASIA

  • The Hong Kong Monetary Authority (HKMA) released the Open API Framework
  • HKMA starts issuing virtual bank guidance and licenses
  • The Monetary Authority of Singapore’s API Playbook is released

AFRICA

  • Nigeria sets up the Open Technology Foundation, a not-or-profit industry group developing open API standards
  • South Africa Reserve Bank (SARB) started researching the establishment of regulatory sandbox to foster collaboration with emerging tech start-ups

Focus for 2019

  • 2019 is the year of realization of the full potential of open banking. Banks have moved from viewing open banking as a compliance exercise to an opportunity to compete and innovate.
  • Focus will be fixed on enhancing user experience in an effort to bring a mobile-enabled and frictionless customer journey.
  • Financial inclusion will be a key benefit of open banking. Open banking technology will play a major role in helping consumers without bank accounts and those facing financial distress. There are several areas where the technology can be used for social good, including access to credit cards, improving capabilities and confidence and taking stress out of debt.
  • Making customers feel comfortable with data will be key. Customers own their data, so they should feel safe sharing their personal data with open banking technology and the apps being launched by banks and fintechs. There needs to be an end-to-end consumer data protection process.

Raising awareness of open banking

Cardlytics published its ‘Open Banking in the UK’ survey in December 2018. They surveyed 3000 UK banking consumers to try and identify what the industry could do to drive up open banking interest and adoption. 74% of those surveyed hadn’t heard of open banking. It concluded that there were four key factors which financial firms need to address with consumers:

Many in the industry believe that better products and services will increase awareness of open banking. Demonstrating trust will be the top priority.

Customers are worried about cybersecurity, skeptical about the need and benefits, consumer control and value proposition.

Providers with whom consumers already have financial relationship are most likely to succeed in open banking propositions. There is a need for comprehensive and simple messaging across the industry to help people understand what open banking means, the potential it brings, and how their money and personal data will be kept safe. Customers need to know how open banking will benefit them.

Factors that will move open banking forward

  • Consumer trust: Companies that are successful at providing useful services and earn customer’ trust will continue getting business.
  • Four competitors within the open banking space: Incumbent banks, tech start-ups, BigTechs and corporates that hold abundance of data in the energy, retail, telco, etc. The latter is still not active.
  • Changing regulation: This is taking place around the globe in different ways, whether to increase competition or innovation, or to promote financial inclusion. We’ve seen a regulatory spark to start from UK and EU and now it is moving to Australia and Canada.
  • Widespread investment in technology throughout the sector.
  • There is potential for lots of exciting new ideas in open banking.
  • Continuous lack of consumer demand has held back creativity.
  • Many companies focus on similar initiatives. It’s all about providing consumers with a good overview of their finances. Consumers will soon expect their banks to do this by default.
  • Real value will evolve from big data analysis of consumer shopping patterns, payment trends and the application technology beyond financial services.
  • Banks should consider unconventional revenue sources generated outside their current area of operations.
  • Banks have to cater to consumers’ interest for support in understanding how open banking will enrich their life with relevant, more responsive, accessible, easy to use services that are trusted and secure.
  • Digital ecosystems will evolve. Cross-industry partnership will trigger new technologies and services coming on the back of collaboration. Users will be able to assemble their own personal digital ecosystems built organically around their needs. These ecosystems will be going beyond financial world to include utilities, bills, leisure and experiences.

Building ecosystems through financial partnerships

Strong API developer portal capabilities are key to winning in the open banking era. A few progressive banks such as BBVA, HSBC, Nordea have started to engage by publicly launching their own developer portals, including APIs, and sandbox environments. These capabilities allow banks to offer secure and controlled access to third parties to interact and use the bank’s functionality and customer’s data to create next generation financial services. Banks that can put the required capabilities in place to effectively and seamlessly engage with third parties and facilitate an open banking ecosystem through their platforms will benefit from an early mover advantage. This will, in turn, strengthen the banks’ API offerings and build a supportive ecosystem of third parties that drive customer value creation.

Potential use cases in open banking

Imagine an app that manages all your bank accounts, deposits, individual savings accounts, mortgages, and investment portfolios held with multiple banks, in one place. It creates your risk profile and asks for your goals. Added to that, the app is integrated with non-financial partners that help you achieve your goals.

Future scenario:

Innovation in personal financial management

Virtusa is a trusted enabler for open banking

Virtusa offers a holistic approach to open banking adoption, providing a platform, and a suite of accelerators and frameworks to get organizations ready for the Open API economy.

Opportunities with open banking are untapped.

Visit www.virtusa.com/open-banking for more information on Virtusa’s open banking solutions.