To understand open banking sketch this: you have your phone but you can’t use third party apps. Say you have an iPhone or Galaxy, you can only use apps developed by Apple or Samsung. If you’d take a picture, you couldn’t send it using WhatsApp. Who would want that? In a similar way, think of your bank as a phone not able to communicate with the apps or services that you want to use. So, why would you want that? Much has been said around open banking. This article describes what changes it entails for consumers. Besides that, it tries to anticipate how it will shape the future of financial services for each one of us.
Doors in the Chinese wall. The change expected by the regulators
So what is open banking exactly about? Open banking means that, upon users’ request, banks will have to release financial data in a secure and standardised way. As a consequence, everything will depend on our consent as users. The European Commission introduced open banking with the Second Directive on Payment Service Providers (PSD2). In the eyes of the European regulator, the new system will democratise the access to retail finances. The effect will be to make it easier to offer cross-border services in Europe, improve transparency of bank account fees and increase competition. With the implementation of PSD2 financial data can be shared more easily among licensed parties. The tools that will guarantee the respect of these standards are the APIs (Application Programme Interface). APIs are a set of functions or procedures used by a programme to access operating system services, software libraries, or other systems. Our financial data are already known to our banks, but currently they don’t make much use of it. There’s currently a Chinese wall surrounding our financial data. Likewise, with open banking our data will still be protected by a wall. However, we’ll be able to choose what doors to open in the wall and who we want to let in. APIs are the secret code to open these doors.
Open banking and a new era of services for consumers
In the future of financial services users will be able to determine exactly what services to use and from whom. They won’t be forced to use a specific service only because it’s bundled to their bank account. In the US and UK open banking is already a fact. There the evidence has shown the emerging of a more customised and relevant offer of financial services. The areas touched by it have been especially money management, budgeting, payments and product comparison. When it comes to budgeting and money management, good examples are companies like Mint or ClarityMoney, that help users to have a clearer view into their finances. New players help budgeting, finding best deals and products or services that suit their users. Open banking and the adoption of APIs also means having a quick and easy way to do payments. Here there’s an important player in the UK, Revolut, that allows users to transfer money easily and for free. In the Netherlands, we have developed our proof of concept with the Bittiq app. Our app for money management and cost-cutting. As a result, the emerging of these realities shows the need for players that know customers and are able to provide unique services based on their needs.
What will the future of financial services look like?
Open banking will shape the future of financial services. This represents a great opportunity for users and also for companies that want to innovate to stay relevant. Combining different services and products, everyone will be able to create his or her own customer journey. Therefore, we will have a party where we deposit our money, another one for money transfer, one to manage our finances and so on. All these services will be provided in a seamless interaction. In facts, thanks to open banking these parties can communicate with each others in the backend, minimising the hassle for the final user. In this context, only the players who offer the best experience will win. Most noteworthy, this will entail better services for customers. With Bittiq we’re ready to use our customers’ knowledge and our technology to build better products for companies that are not afraid to embrace the change.