The financial sector is witnessing a digital revolution. Traditional banks are inclining toward modern trends and starting to provide different third parties with information previously considered banking secrecy. In this article, we will try to figure out why such things are happening, who needs them and why?
Disclosure Of Banking Data
The trend originated in Germany in 2010 and since then, the Open Bank Project has been gaining popularity and continuously developing projects that support and encourage the disclosure of banking data and is supported by the countryâ€™s most influential banks.
In the UK, with the help and support of the government authorities, the Open Banking Standard initiative was formally launched. It aims to increase competition and accessibility of services among financial institutions. In the initiative, it was decided that banks must provide third parties (the so-called FinTech companies) with data regarding account holdersâ€™ balances and access to their current accounts.
In the initiative, it was also decided that the principle of open banking data will become mandatory for 9 large banks operating in the UK, which serves more than 80% of the countryâ€™s population.
Use Of API Technology
The transfer and provision of data are carried out using anÂ open banking APIÂ or Application Programming Interface. Simply, it includes a list of commands, responses, requests, with the help of which computer applications interact and exchange information with each other, â€œforcingâ€ each other to perform any actions.
An example of the usage of API can be the smartphone applications that allow users to check their balance, make a payment,Â bank account verification API,Â and perform other banking transactions directly from the smartphone.
Prospects And Benefits Of Open Banking API
Nowadays, the growing trend worldwide is to provide banking APIs to all organizations looking forward to working in the financial sector. This modern innovation offers several benefits for both clients and banks.
For example, it makes creating a universal smartphone application possible, using which users can easily see the information of each bank of which they are the account holder. Earlier, for each bank, the user needed to download a separate application, which further complicated the choice of relevant services and offers provided by the banks.
The multi-banking application allows users to:
Check your balance online and conveniently manage your accounts from various banks.
Streamline trading operations (selecting a bank for making payments, a faster credit check, for making payments using smartphone applications)
Simplify and execute mortgage/loan applications that can easily confirm the financial competence of an individual using smartphone devices, making the process of obtaining a loan effortless.
Easy access to the banking API is also advantageous for banks:
Banks have the option to expand their distribution channels for financial products and services using third-party companies and modern information systems.
Development of various distribution channels â€“ potential for building up the client base of the bank.
Banks will get uninterrupted access to information and services from third-party companies, which will make it easier to better navigate through financial services trends.
Moreover, the open banking API offers the chance to follow the new market from the inside and also allows to outbid the company behind the most successful advancement in this area to strengthen its own position in the marketplace.
As it has been already pointed out, the decision to implement an open banking APIÂ benefits all the process parties. Now letâ€™s consider how this concept is being applied in different countries across the world.
Experience In Using Open Banking API
Since January 2018, the PSD 2 (European Payment Directive) standard has been implemented in the European Union countries, obliging financial institutions to provide customer databases and programmatic interfaces (API) to third-parties companies looking forward to working in the financial sector. Such a thing will help increase competition in the smartphone online payment market by the arrival of technology companies.
In the United States of America, currently, there is a lack of regulation of the issue of open API banks. However, the favorable financial environment helped create the banking aggregator company Mint, whose website was already used by more than 20 million people in the USA and Canada in 2016.
In Singapore, the principles of an open banking API initiative are supported by the Monetary Authority (MAS). The MAS and Association of Banks of Singapore (ABS) have jointly prepared the Finance-as-a-Service: API Playbook, offering information and guidance for the financial sector to ensure effective exchange of financial data and develop the stage for the launch of innovative banking projects.
In India, the India Stack open API information platform was created to meet the requirements of next-generation banking services. The platform also includes services like Aadhaar â€“ the worldâ€™s largest digital biometric identification system, Digital locker â€“ a platform for generating and verifying documents in digital form, National Payments Corporation of India, etc.
India Stack allows developers and tech startups to enter the smartphone marketplace for identifying and authenticating financial service users.
Best For Individuals And Businesses
The open banking API is helping both individuals and small and medium-sized businesses. The system needs end-to-end digital infrastructure, and some banks are still not able to offer a custom experience to their users.
Some modern banking platforms like open APIs, AI-based analytics, cloud computing, and a high level of security are necessary for smooth transactions. Digitalization is being slowly implemented in the banks to offer a seamless experience to customers, banks, and third parties. However, such an evolution will take a little time to happen globally.
Nowadays, various banks and fintech companies have started working together. However, still, there is a need for improvement in the open banking system like augmented reality, digital advisors, virtual reality components, etc. This will help in boosting the trust factor and also enhance the customer experience.
If you would like to fast track your Open Banking journey and stay ahead of the curve, check ourÂ One APIMarketplace for Banking. A comprehensive solution to easily comply with OBIE and PSD2 regulations and innovate at scale. Also, read about how we helped a challenger bank in UK with theirÂ Open Banking innovation.
ABOUT THE AUTHOR
Senior Marketing Manager
Jay is an engineer turned marketer. Curious & loves math, logic and marketing. Drives DigitalAPICraftâ€™s marketing efforts. Experienced in marketing strategies, content marketing, lead generation, campaign management, event & field marketing, marketing automation and analyst relations. Over the years has worked on several tech marketing initiatives with global organisations like Harman Connected Services (Samsung), Mystifly and Toyota. Reach out if you want to talk technology, marketing or basketball.
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