What is Open Banking and its Impact on Future Financial Services?

Open Banking is the current buzzword being used in the technology space and in simpler terms what it really mean’s, is that it’s a way for two systems to communicate to each other using a set of rules and protocols that govern the communication between two systems.

In 2016, a report was published by the Competition and Markets Authority (CMA) in the UK’s retail market which found that older, larger banks do not have to compete hard enough for customers’ business, and smaller and newer banks find it difficult to grow and access the market.

To tackle this, they proposed a number of remedies including Open Banking, which enables customers and small and medium-sized businesses to share their current account information securely with other third-party providers and give access to their transaction data, compare accounts, and access new products.

How does it work? Open banking allows you to give consent to regulated third party providers to securely access your bank transaction history or to make payments, for a business entity they could give access to their business bank account transactions to make accounting easier or speed up the process of applying for a loan.

Open banking could help you move, manage, and make more of your money. You’re always in control of what transaction information you choose to allow access to and stop access to your data at any time.

What are some of the benefits of Open Banking?

  1. Data sharing

    It enables both customers and businesses the freedom to access all banking data in real-time. It provides them with more accurate and up to date information on their finances. They would also be able to have access to more personalized resources for making better banking decisions.

  2. Collaboration between banks and fintech

    Open Banking enables fintech companies to access bank data and functionalities, bringing a great change within the digital banking ecosystem. This will bring forth potential collaborations within the financial sector. More importantly, it will also bring about agile processes, and cultivate a culture for innovation with much needed technological expertise that the fintech sector can provide.

  3. Increasing digital revenue

    Increasing digital revenue is crucial for financial institutions to gain a competitive edge, especially amongst the bigger players. This is already an existing reality in Europe, where member states are obliged to abide by the Payments Services Directive (PSD2) regulatory standards since the start of 2018. This regulation aims to increase competition within the financial industry by requiring European banks to release Open Banking APIs in order to provide Account Information Service Providers (AISPs) and Payment Service Providers (PSPs) access to customers’ information such as account balance.

The Monetary Authority of Singapore and Singapore Association of Banks are also encouraging the development of industry-wide standards with its Finance-as-a-Service API Playbook. The playbook serves as an affirmation for banks and fintech companies that have already begun to open their APIs as well as an encouragement to those who have yet to do so.

Which banks are on the Open API bandwagon?

  1. OCBC – First in SEA to launch Open API

    OCBC was the first in South-east Asia to launch an open API platform.
    OneTouch is an example of a service that allows mobile banking app users to check their bank balances, latest transactions, and a credit card overview with their fingerprint on their smartphones, without having to log in.

  2. DBS Bank – World’s largest API Platform

    DBS Bank launched DBS IDEAL, a service that allowed small businesses, including start-ups and Small and Medium Enterprises (SMEs), to send payment instructions directly from Xero to their DBS IDEAL internet banking account instead of entering them manually. The service is available to all Xero Singapore customers who have an active DBS Singapore bank feed that is using a DBS IDEAL account.

James Mutua - Head Payments Services, Eclectics International