Bank Regulation

Open Banking Gains More Investment And Government Attention

The open banking wave is starting to spread.

One of the latest signs of that comes this month from Germany, where Hamburg-based Deposit Solutions, a company that launched in 2011 and sells open banking technology, recently announced it had raised $100 million in capital in a round led by Vitruvian Partners, a Munich private equity firm.

The funding round reportedly stands as the second largest ever for German FinTech.

Deposit Solution’s software enables lenders to connect with retail banking clients and helps financial institutions provide their customers with a selection of third-party deposit products under their existing client relationship. The company “now connects more than 70 banks from 16 countries to more than 30 million savers,” it said in a statement announcing the funding. The capital will help fund international expansion — perhaps in such countries as France, Italy and Spain — and other forms of growth.

Equifax Move

Another recent deal designed to further the spread of open banking involves Equifax, the consumer and business insights expert. The company recently formed a strategic alliance with consents.online, a digital consent management and AISP-accredited open banking platform.

Equifax said the partnership marks the first time that U.K. consumers and small businesses have been able to manage the sharing of their financial information. The company noted that the alliance was established to develop solutions for the U.K.’s open banking initiative, which gives online banking customers the ability to share their financial data with FinTechs. Equifax added that the partnership enables consumers and small businesses to provide consent to organizations to access financial data.

While open banking is not exclusive to European markets, recent PSD2 and open banking regulations that came into effect earlier this year offer an opportunity for other jurisdictions to learn by example.

North American Focus

North America is one such market, as two-thirds of banks view open banking as a competitive imperative, suggesting that it is more open than Europe or Asia-Pacific to the data sharing required to make it a success.

Even in countries with no open banking regulations, the tilt toward that future is ongoing.

Canada, for instance, seems ready to embrace a model that encourages the sharing of financial data across FinTech firms and FIs. One sign comes from the country’s federal budget, which outlines moves to boost the country’s financial services sector, and specifically mentions open banking.

“The government proposes to undertake a review of the merits of open banking in order to assess whether open banking would deliver positive results for Canadians with the highest regard for consumer privacy, data security and financial stability,” the budget said.

Open Banking Hurdles

Despite the spread of open banking partnerships and alliances, and at least initial support from government, hurdles remain – and those challenges go beyond the different cultures found at FinTech firms and longstanding financial institutions. Those banks might seem “overwhelmed” by the sheer number of startups and young companies vying for open banking business relationships, according to one analysis.

“You would think, with these regulations coming out, it would make it easier for banks. What is happening is it has made the space more crowded,” said one U.K.-based banking expert. “Startups are not standing out from the crowd.”

But banks cannot afford to wait around. That’s underscored by a recent survey report that found 63 percent of banking customers are “willing to share financial data with a competitor to get a better deal.” Sixty percent would consider moving to a competing financial institution if that experience lagged.

Open banking is a work in progress. But the money is flowing and partnerships are forming, and that means a clearer picture of how that effort is developing will come soon enough.

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