Thanks to its ability to completely reshape how we manage our money, open banking is set to become a house hold name.
At its heart, open banking is founded on a very GDPR-like idea that we, as customers, own our banking data and that that data has value. In practice, this means we can ask our banks - assuming they are participating members of the UK’s open banking community - to provide our information to regulated third parties. This transfer of data is fuelling a wave of positive innovation and disruption across the financial sector.
Open banking is already making a difference and creating more choice for customers. Services that already exist to:
- Make transfers between current accounts more accessible and quicker
- Let you see all your accounts’ balances across different providers in one app
- Create different savings accounts
- Help customers pay less in interest for loans and make more interest on savings
- Create opportunities for microloans
- Generate innovative payment gateways and e-wallets.
In summary, open banking has the potential to transform the way we move, manage and earn money. It is about making cashflow management and collecting payments cheaper and more accessible for everyone. Open banking has the absolute power to transform the financial service market by creating more choice, access and value for consumers.
Banks that use open banking aren't your typical lock-and-key establishments. Banking may, in the future, become 'banking as a service' and 'banking as a platform' by taking a customer-centric approach to financial services. As such, there is the potential to provide financial services that the bank did not previously offer.
In the age of open banking, banks must be more competitive to gain consumers. As a result, customers will have more alternatives, better customer service and higher-quality financial services. Banks that adapt to this new technology have a better chance of succeeding. Banks may compete directly against fintechs, third-party institutions and bank incumbents by combining open banking with digital banking and SaaS hosting.
Growth of digital banking
Previously, when someone talked about digital banking as the future of all financial institutions, you would have been inclined to agree with the statement. However, with the change in the tech space, the statement and reliance on digital banking as the driving force of change has become obsolete.
The reason behind the idea is that digital banks have been around for quite a long time and most banks provide digital platforms to their customers. Those that have failed to enable a digital medium of service are either closed or are soon to close.
Today, the future of financial institutions is open banking, and thus this brings us to the topic of how digital banking has transformed over the years into open banking.
Digital banking becomes open banking
As a business model, digital banking integrates online, mobile and ATM banking services. Quick, simple and smooth are the three qualities that best describe digital banking.
Computers, tablets, and, more significantly, mobile phones are increasingly used to conduct banking transactions. Consumers today do not want to wait in a bank line. They expect banking to be available on their terms, when and where they need it.
With today's ever-increasing competitive pressure from fintechs and other banks, every competitive advantage is required. The transfer of information between banks and fintech firms is managed through an application programming interface (API) – an intermediary software solution that allows different institutions to talk to each other.
Open banking has the potential to reshape the competitive landscape and our experience of the banking industry. Open banking offers customers and businesses a once-in-a-lifetime opportunity to alter how they handle their funds. It's a strategy for transforming the banking industry. The math behind open banking is: [(Online + Mobile + ATM = Digital Banking) + API Access = Open Banking].
Open Banking Implementation Entity UK
Open banking, as we know it in the UK, results from the retail banking industry's response to the UK government's request for fairer, more transparent banking and financial services. It comes after the Competition and Markets Authority (CMA) investigated the supply of current personal accounts (PCAs) and banking services to small and medium-sized businesses (SMEs).
The CMA established the Open Banking Implementation Entity (OBIE) to deliver the Application Programming Interfaces (APIs), data structures and security architectures. It enables developers to harness technology, allowing individuals and SMEs to share financial information held by their banks with third parties securely and straightforwardly.
According to a growing consensus in society, data has value and belongs to the consumer, not the bank. We're developing technologies that will allow consumers to access and share data in a new, secure way.
The CMA determines the governance, composition and funding of the OBIE, which is a private entity. The CMA, the Financial Conduct Authority, and Her Majesty's Treasury oversees it. The OBIE is financed by the UK's nine largest current account providers. AIBG, Bank of Ireland, Barclays, Danske, HSBC, Lloyds Banking Group, Nationwide, RBS, and Santander are the nine mandated institutions (also known as the "CMA9").
The goal of OBIE is to put the control into the hands of banking customers, where they will have accurate control over their data so that they can effortlessly and securely move, manage, and make more of their money.
The platform is working to create a dynamic, profitable and sustainable market for new financial services in the UK, easily accessible through consumers' everyday devices.
Is open banking secure?
The banks themselves created the open banking API endpoints and have undergone rigorous testing by the institutions and several licensed and regulated third parties such as OpenWrks. Not only does open banking exist within the banks' well-established and highly secure technological systems, but the APIs offer a very safe means of data sharing. You are the only one who may authorise any link between your bank and a regulated third party since you are the client and the owner of your data. It means you'll never have to disclose your bank login credentials to a third party.
Current implementation and usage
The technology is mature enough for it to be trusted and implemented on a large scale. According to statistics, API calls are expected to rise from 66.8 million in 2018 to over 5.8 billion in 2020. Between 2018 and 2020, API call volumes were more than seven billion. In 2018, the system made 320,000 open banking payments; by 2020, that number would have increased to nearly four million. In November 2018, the system gave the first business loan based on open banking data.
More than 2.5 million individuals utilise open banking to transfer, manage, and maximise their funds now. As technology has become more integrated and simpler to use, this number has continued to rise. From one million users in January 2020 to two million in August 2020, the ecosystem has continued to expand at a rate of one million new users per month, with the ecosystem on track to reach three million members soon.