Open Banking - Is it comforting to customers or not?

Big changes are on the horizon.
You may have seen or heard about Open Banking, PSD2, and CMA in the news over the past year. Or, you may be hearing about them for the first time right now.
Fortunately, Open Banking is right here and it is going to stay.

In the banking sector, the concept of “open” can seem contradictory. Banks traditionally have a “duty of care” to protect their assets rigorously, as required by regulators and customers.
Traditional Banking is been the same for…just about forever. For the most part, the power dynamic between banks and their customers has stayed about the same.

Whether you bank in person, over the phone, online or mobile, the relationship with banks hasn’t changed much alongside the technological advancements. You set up an account with your bank, they facilitate the ebb and flow of your money, and, as a result, they hold the data around that money. All of the histories around your purchases, loans, payments, debits, and credits rests with them.
Now banking is about to undergo a major shift.

With the ‘Open Banking’, (the outcome of the beautiful blending of Financial and Technology sectors), all of that is going to change.

With……

- Improving overall customer experience by engaging them and to attend to customer needs in a secure, agile, and future-proof method.

- New Revenue streams by increasing digital revenue from new channels.
  As rightly said by Kristin Moyer, Vice President of Research and Distinguished Analyst at Gartner and I quote……“Open Banking is about making everything for sale. It provides a new way to increase digital revenue for the banks that are willing to think differently about what it means to be a bank.”

Sustainable service model for underserved markets.

………… open banking is definitely a welcoming change.

BANKING : THEN & NOW — BANKING: THEN & NOW

BANKING: THEN & NOW

In 1872, when first wire transfer happened nobody would have imagined how the entire scenario will change from wire transfer to ATM’s in the 1960s to telephone banking in 1980s. 1997 saw the rise of internet banking which paved the way to contactless payment in 2007 and mobile banking in 2010, but still, the traditional ways of banking continued. But NOW Human-Centered Fintech is making way for personalization and open banking.

What is Open banking?

Open Banking is a financial services term as part of financial technology that refers to:

The use of Open APIs that enable third-party developers to build applications and services around the financial institution.
Greater financial transparency options for account holders ranging from Open Data to private data.
The use of open source technology to achieve the above.

Thus, “Open Banking is the possibility of creating new digital business and ecosystems through APIs provided by the banks.

How does Open Banking work?

Open Banking will enable companies to give more accurate personal
financial guidance, tailored to your particular circumstances and delivered
securely and confidentially. To provide tailored advice, companies need to know how you use your account. At the moment, to get personal financial guidance, you have to hand over your confidential banking information to price comparison websites.

Source: by Wikimedia Commons

Open Banking will use APIs (Application Programming Interfaces) to share customer information securely.

Companies will be able to use open banking APIs to see your transaction information to tell you what you might save when considering the current account best suited to you. Or if you run a small business you could find the best deals for your business accounts and loans.

No in-betweens, no interruptions, just pure and simple direct customer-to-service relations

Open Banking at its best.

HOW BIG IS OPEN BANKING??
….. well the picture says it all

Global open - banking developments — Global open – banking developments

Source: https://goo.gl/VmjhSy

WHO’S WHO ……ZOOMING ON OPEN BANKING

Source: https://goo.gl/VmjhSy

So, how does it help, and why does it matter to you?

To answer these questions, let’s take a look at what open-banking brings to the digital market and on your FinTech plate.

Source: europa

Transparency of Data

Companies connect with third-party APIs by developing apps which provide financial services for their customers and connect with banking sectors/firms for access to customer data and personal info. This transparency of data leads to the establishment of improved customer relations.

Through open-banking services, you’ll be able to

- invest in financial products

- manage your money

- get detailed financial statements generated

pay from one platform to the other (like how you use Paytm for paying your BESCOM bills or the Simpl/LazyPay wallet to pay for other services).

Think open-banking, think big-picture.

No back and forth dialogs, no payment hassles or dealings with banks. Direct peer-to-peer payments and transactions between customers and businesses. Period.

Cyber security features integrated with API to enhance security features — Cybersecurity features integrated with API to enhance security features

Image Source: Medium.com

Safety Benefits

If safety wasn’t a priority, we’d all be worried. Open-banking doesn’t compromise on security and leverages Fintech services to adapt to growing security needs. With Agile technologies operating on robust platforms, open-banking is built on a platform of secure systems which means your personal data doesn’t leak to anonymous parties or get hijacked. Banks share personal data through APIs and intermediaries and connects developers with payment networks like VISA and MasterCard for the seamless exchange of money balances and financial information. Cybersecurity measures and anti-intrusion technologies come integrated with APIs, thus building upon layers of transactional security.

Image Source: Zanders.EU

Consumer-Centric Approach

At the end of the day, we love our services and open-banking matches consumer expectations. From Uber’s APIs integrating Google Maps and payment gateways to companies using Big Data, Analytics, and FinTech services to leverage creative products and services, open-banking gives users total control over their financial exchanges.

Customer engagement as is (left) and after PSD2 (right)

Source: europa
Data sharing in financial services tend to be the risk- and permission-based, with required audit trails, and subject to regulation and risk management. If done well, however, it can deliver increased security through enhanced know-your-customer capabilities, identity validation, and fraud detection.
The current version of PSD2’s technical standards may put an end to the practice of screen-scraping, long a point of contention for banks. Guidelines and policies are drafted in place to prioritize and safeguard users’ financial interests, thus ensuring privacy and flexibility in one package.

- PSD2 ????
PSD2 (Payment Service Directive 2) explicitly empowers account holders with the authority to share data, removing the financial institution’s role as gatekeeper. PSD2 is about putting all existing players under one, unified regulatory framework. It is a directive that requires banks to provide access to their customers’ accounts via open APIs. Perhaps the most complex is educating end users on data permission and privacy. PSD2 covers all payments accounts, including easy access savings accounts and credit cards that are accessible online or over a mobile.

PSD2 legitimizes payment initiators and aggregators, bringing better consumer protection, improved security, clarity about liability for unauthorized transactions and some aspects of data protection.

European Union Council's PSD2: Timeline Since Proposal Stage to Implementation — European Union Council’s PSD2: Timeline Since Proposal Stage to Implementation
Illustration: PSD2 Timeline (Capgemini Financial Services Analysis, 2017)

Source: https://www.worldpaymentsreport.com/capgemini-pov

In a nutshell, PDS2 will promote innovation in the payments space because it allows new players access to the likes of XS2A (Access to Account) , providing a direct connection between retailers and banks, enabled by APIs.
It will also introduce the requirement for 2-factor authentication when making payments, and grant the unconditional right of refund for direct debits under the SEPA CORE scheme, as well as a ban on surcharging, excess charges for using payment cards and providing heightened consumer protection against fraud.
The disruptors that best understand, respond to and implement the new regulations will gain the most. It will not be easy for anyone, but it will, ultimately, benefit consumers, and ensure that another large step towards the digitalization of nearly all cross border or domestic payments.

For detailed information check the Best PSD2 infographics so far.

Image Source: Medium.com

Economic Portability

Seamlessly exchanging money between persons, customers, and businesses are the future of open-banking, with no intermediaries in-between of course. Businesses will build long-lasting bonds with customers which may put banks at risk. Thus, banks will be pushed to come up with innovative financial products and services which takes consumers’ interests and needs into consideration, hence, totally reshaping banking business models. This is lucrative for the customer in the long run.

Through open-banking, both public and private sector banks will incubate Fintech companies, partner up with organizations and provide innovative services to the consumer which will thus lead to an enhanced digital e-finance experience.

Image Source: OpenDataSoft

The Verdict

Ever dreamed of a world where you no longer have to make manual wire transfers or go through tedious transaction processes for paying money to your favorite international merchants or services? Looking to make a profitable business and interact directly with consumers and assist them with financial transactions?

This is what open-banking brings to the e-commerce plate.

For the people, who love ….

Seamless peer-to-peer digital transactions
Responsive Invoicing Systems
Detailed financial statement generation for products/services
E-wallet facility for shopping on different platforms or cross-platform transactions
Using the same account number for availing different financial services online
Direct customer-service relations with no banks in between.

Open-banking is definitely the way to go, for all of us.

By using e-wallet facilities and a go-to account for all digital transactions, consumers are able to avail services across different merchant platforms which is something traditional banks don’t provide.
Online shopping becomes responsive and platforms turn agile through customized e-commerce solutions brought to consumers through open-banking technologies.

Founder and CEO, Teknospire Mr. Vishal Gupta’s take on Open Banking

“Banks are running out of time to adopt changes especially Open Banking, from not only to penetrate customer with new offering but also as a regulatory mandate initiated by few countries across the globe. While banks have a choice to build their technology divisions OR collaborate with fintech firms, we do witness the latter one in trend.”

For the consumer, open-banking is a welcome change. The times are changing. Banks will soon be moving to Agile technologies, build strong partner networks, and create robust mobile platforms which cater to consumer’s needs, thus enabling direct financial transactions between customers and businesses and making cross-platform payments a reality.

In the foreseeable future, the bank that offers the most widely accepted platform for lending, investing and payments, is going to rule the market. Beyond saving and lending cash, the bank of tomorrow will match financial incentives and enable direct financial transactions between customers. The world’s largest taxi company doesn’t own any vehicles. The world’s most eminent media owner doesn’t create any content. Maybe, just maybe, in the future, the world’s largest bank will not even hold deposits.