While the term "open banking" means slightly different things depending on where and to whom the question is asked, what is now universally acknowledged in the industry is the potential for third-party access to transaction data and banking services to fundamentally reshape the value chain, competitive landscape, and customer experience across retail, SME, and corporate banking. However, as the opportunities open banking presents have become clearer, so have the practical challenges that the industry must address if mass market adoption is to be achieved.
The open banking ecosystem is growing rapidly. Analysis of the registers published by the EBA and national competent authorities shows that at the end of June there were 159 third-party providers (TPPs) registered under PSD2. This is an increase of over 31% since the end of 2018, and a clear statement of intent by a range of different players looking to build customer-facing propositions to take advantage of the account information and payment initiation APIs mandated under Europe's open banking framework.
At the same time, many banks are now looking beyond the minimum regulatory requirements to offer a range of chargeable APIs to TPPs. This would represent a significant change to the existing distribution model for the industry and create clear opportunities for those banks that are agile and innovative enough to take advantage. Providing enriched transaction data, supporting workflows such as credit applications, and even digital identity services are all examples of what may emerge in this area.
However, while the opportunity for innovation is extensive, there remain some critical issues that must be addressed. While the regulatory frameworks that exist in Europe in particular have been effective in setting the path for the industry to follow, many important practical issues have been left unresolved:
End users need to know they are acting within a trusted framework, with the same security and dispute resolution protections that exist in other transaction areas. Indeed, the aim should be for open banking to be the invisible enabler of innovative products and services.
Developers and TPPs need to interact with both bank APIs and their customers easily. Work to at least minimize the fragmentation in API standards, and investment in developer-friendly portals are required.
Banks need to be able trust that the TPPs their customers wish to interact with are both secure and will not introduce security risks to the bank or customers. In effect, the same risk monitoring and fraud detection capabilities that exist in other transaction areas need to be brought into the open banking space.
Ultimately, the success of open banking will be secured where end users, be they consumers, SMEs, or corporates, see only the service enhancements it brings rather than the mechanism behind it. In practice, this will require a relentless focus on removing friction from the experience of all stakeholders – not just end users but also the developers and TPPs that will play an integral role in shaping the future customer experience.
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