THE FAST, THE SAFE AND THE OPEN — what is Open Banking really about
Once you’ve heard the term “open banking” you might have thought it’s the same thing as digital banking, understood as simply having access to your money through an app of some kind. Nothing could be further from the truth, however — open banking is a new trend that combines all the benefits of digital banking plus API access. From the client’s perspective that means a new scope of services and possibilities, such as microloans or AI-based apps that can help track one’s expenditures.
If it doesn’t sound particularly safe — since we’re talking about external apps gaining information directly from our bank account — let’s remember, that in the early ’00 people were rather skeptical about logging in to their bank from a PC. Currently, however, going to the bank physically is pretty much the last resort if something really cannot be done online. Based on that experience — let’s try and be a little more enthusiastic about open banking.
What open banking is — it’s processing specific banking data through properly secured APIs (application programming interfaces). A good example of open banking in context is PIS (payment initiation service), where the customer can pay for a product by clicking one button, which will allow secure login to their bank and money transfer, without going to the bank page directly. It’s more convenient that way, without opening a second tab, login in, then copy-paste all the necessary information, since PIS does that automatically, reducing the possibility of having a typo or transferring the wrong amount of money. It does however encourage spontaneous shopping decisions, which is another kind of issue and many would prefer to call it something like improved customer engagement, which in my personal opinion sounds great.
And data proves it’s attractive, with rapid growth in open banking users, particularly in Europe.
But is it really safe?
Yes. One of the leading security challenges in open banking is to ensure that only authorized users have access to customer data. This requires implementing strong access controls and user authentication mechanisms. As open banking involves the exchange of sensitive data across networks, it is important to secure these networks against attacks. This requires implementing firewalls, intrusion detection systems, and other network security measures. What is more, with the increasing use of open banking, it is important to have systems to monitor security incidents and respond quickly and effectively. This requires a strong incident response plan and regular security testing. In Europe, all APIs must be approved by authorities, with the point being to ensure compliance and privacy. The regulations differ from country to country however, with Financial Conduct Authority (FCA)being the regulator in the UK and European Central Bank (ECB) and the European Banking Authority (EBA) in UE.
Does it benefit only the customer?
No. Improving customer experience is one of the reasons why open banking is a thing, to begin with, but it will also bring profit to the banks — those will be able to provide more personalized solutions to their clients which means an increase in profit.
From a technological point of view, API integration and interoperability are difficult and expensive. Open banking relies on the ability of different financial institutions to share data and services through APIs. That means the main infrastructure still belongs to the bank, so the owner of API must provide a high level of technical standardization and compatibility to ensure that different systems can communicate effectively. And since different people use different banks, it means being integrated with many different structures, for everyone to be able to join the party. On the other hand — open banking requires customers to actively engage with their financial data and services in new ways. Therefore, it is important to ensure that the user experience is intuitive, easy to use, and accessible to everyone because in the end, it has to be more convenient than login to the bank itself or otherwise what’s the point?
A good example of quick person-to-person transactions (even on national holidays or weekends) are charity-oriented pages like zrzutka.pl. The point of the page is to talk the reader into donating some money for a specific purpose — the page itself enables making the transaction immediately through a call-for-action button and PIS protocol. If a person donates some money through that page, their donation appears immediately on their chosen zrzutka ID, which is way faster than transferring the money in a traditional way.
Another relevant factor is that open banking is not a competitor to anyone really — it’s not competing with legacy banks or their infrastructure. It’s debatable if it can be a serious competition to credit cards since those operate in a different environment. After all, there is no point in using open banking to take cash out of the ATM. It’s more about making transactions even faster than now, using new, more attractive, and intuitive revenue streams, so it’s a complete novelty designed to make banking more convenient.
The future will show, what can be done with it and how it’s going to influence customer behaviours.
