Three Years On, Open Banking’s Progress And Roadmap Ahead

Anniversaries offer a moment to pause and reflect, and look back on what’s past and what’s to come.

That includes anniversaries in the payments space, of course.

Last week, Jan. 13 to be specific, marked the third anniversary of open banking’s official launch across the pond in the United Kingdom.

In broad strokes, open banking lays out a path and process for banks and other financial institutions (FIs) to share their customers’ data with third parties (even competitors), where that data tie into apps and new products and services. Generally speaking, that data sharing paves the way for a streamlined banking experience, especially over online and mobile conduits, via regulated providers. And though the initiative may have had ground zero in the U.K., open banking, in principle and practice, has spread to other countries (such as in Taiwan and in Australia) throughout the world.

In terms of mechanics, as directed by the U.K.’s Competition and Markets Authority, in terms of the mechanics of the data sharing, application programming interfaces (APIs) offer a connection that lets the third parties tap into banks’ data and build their own app-focused offerings.

The trend, then, is toward collaboration between traditional FIs and tech-savvy FinTech upstarts, to develop digital first offerings that dovetail with the new (online) normal wrought by the pandemic.

Dan Weaver, open banking expert at Equifax U.K., said in an interview with Global Banking & Finance Review, “With lockdown once again in place across the UK, it’s clear 2021 will be a year of extreme financial flux,” adding that “with the third anniversary of its implementation today, Open Banking is entering a new mature phase of its development. The initiative’s credentials are now widely established, offering creditors the perfect pandemic tool to assess the most accurate picture of an individual’s finances.”

In terms of scale, reports that 300 FinTechs and providers have joined the ecosystem, and more than 2.5 million U.K. consumers and businesses use open-banking enabled products to manage their finances and make payments.

API call volume, according to the data, have increased from 66.8 million in 2018 to roughly 6 billion in 2020.  Cumulative call volumes have reached more than 7 billion, while open banking payments have risen to more than four million transactions in 2020, up significantly from 320,000 in 2018.

Open Banking In The States 

As for open banking here in the states, as noted in this space late last year, regulators are refocusing on the space. As reported, the Consumer Financial Protection Bureau (CFPB) is starting the rule-making process that may help determine and standardize what data can be shared, when and between which parties. A document released by the CFPB specifically mentions implementation of Section 1033 of the Dodd-Frank Act. That section, we wrote back then, among other things, provides direction for information (and authorization) that a consumer financial services provider must make available to consumers about the data accessed, maintained and used about those consumers.

“This type of consumer-authorized data access and use holds the promise of improved and innovative consumer financial products and services, enhanced control for consumers over their financial lives, and increased competition in the provision of financial services to consumers,” said the CFPB.

A commentary period (with input from various financial services stakeholders) would gather positions on open banking’s cost/benefits of consumer data access and security, among other topics.

In the meantime, as regulations shift and frameworks take shape, money continues to back various open banking product launches and partnerships across the global stage. Taiwan is entering the next phase of its own open banking efforts, centered on unlocking account and transaction data to make that information available to third-party solution providers.

A few recent examples profiled in these digital pages centered on private market activities:

U.K.-based FinTech VibePay recently debuted its open banking-powered dashboard designed for small and medium-sized businesses (SMBs) to streamline payment workflows in a consolidated portal. Separately, Germany’s Mambu, which offers a suite of APIs,  recently announced a $135 million funding round that values the company at more than $2 billion. And in evidence of cross-border partnerships, Revolut, the European digital bank, announced in November that, in collaboration with the U.K.’s TrueLayer, it will expand into Germany. The linkup will let users transfer money across various bank accounts without logging into separate systems, and without fees.

Drilling down a bit into different approaches to make data sharing (for lack of a better term) standardized, TCH released a template at the end of last year designed to help banks link with FinTech firms and connect to APIs. The (voluntary) template is known as the Model Data Access Agreement and helps stakeholders reach bilateral data sharing agreements. Data aggregators such as Plaid and Finicity work with banks and other financial institutions as an interface/platform for access to consumers’ financial data. And, of course there’s the Financial Data Exchange, which operates as an industry-wide consortium geared toward data sharing.

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