Open Banking offers new products and services that could help customers and small to medium-sized businesses get a better deal. It also allows consumers to have a more detailed understanding of their accounts and help them find new ways to make their money go further.
It is designed to increase innovation in payments and give consumers more choice and control over their financial data. An example of this is the use of ‘screen-scraping’ where some apps and websites harvest their customer’s details so that they can log in to their accounts and analyze their financial information or make payments on their behalf.
Through Open Banking, you’re never asked to share your password or login details with anyone other than your own bank or building society.
There is a clear demand for the service as 72% of customers want a bank transfer option when shopping online. As a result of this, over 10,000 financial institutions worldwide have open banking facilities and it is estimated that open banking payments will have a transaction value of $9B by 2024.
Open banking is already familiar to many European customers due to the Second Payment Services Directive, or PSD2 &#8211; a piece of legislation that was introduced in September 2019.
The result of this has seen a sharp rise in the use of open banking across Europe, with merchants, financial institutions, and technology companies such as Trustly which is the firm behind the Pay n Play technology, all-seeing the growing benefits to open banking.
Sweden, where Trustly is based, has been a leading pioneer for fintech firms and is pushing for the banking industry to turn towards debit payments rather than credit.
Across a variety of different markets, there are moves being made towards open banking.
In the Americas, Canada, Brazil, and Mexico are all utilizing open banking to a certain degree.
The U.S is slightly different as the state-based legal and financial system makes change slow. Despite this, many financial institutions are trying to develop open banking systems since they see the customer loyalty benefits it brings as a competitive advantage.
The Asia-Pacific region is also responding well to open banking, seeing a lot of activity in the last five years.
The top two aims of the majority of banks in this region are to access innovative banking services and reduce the complexity and costs associated with online banking.
India introduced open banking guidelines in 2016, making it one of the first markets to bring positive legislation in support of online banking. The United Payments Initiative has seen a huge uptick in the number of people switching to alternative payment procedures more favorable for online gaming.
Australia completed its much-anticipated ‘Consumer Data Right’ (CDR) regulations in February 2020, which is paving the way for online banking in the country. They are focusing mostly on data-sharing aspects but there is a strong suspicion that payments will be introduced further down the line.
Open banking has the potential to provide both consumers and merchants with a simplified, innovative alternative to online payments, and there is evidence that the coronavirus pandemic has only further accelerated its meteoric rise within the world of payment providers.