Open Banking is an industry term that’s often misunderstood. We explain more about what it is, where it came from and how it’s disrupting payments.
What is Open Banking?
Open Banking describes a way of securely sharing data held by banks, if customers consent to this. Some countries mandate a standardized format for this data-sharing.
Better bank payment is just one of the stand-out use cases of Open Banking. This connects customers to their bank accounts locally so they can pay sellers worldwide in seconds.
Open Banking payments are not only speedier, simpler and safer for consumers. They also help e-commerce merchants boost conversion, customer satisfaction and cost savings.
Where did Open Banking come from?
Open Banking was introduced in the EU and UK in January 2018, originally as a regulatory initiative to improve competition in banking and payments.
The revised payment services directive, or PSD2, regulates how Open Banking is implemented in the EU and EEA. However, the reach and scope of Open Banking is expanding.
Banks and authorities in Australia, Brazil, Canada, India, Hong Kong, Singapore, the US and more are actively exploring Open Banking opportunities.
Meanwhile the scope is growing to include financial data around savings, loans, pensions and insurance for more of an Open Finance proposition.
What problems does Open Banking solve for PSPs and their customers?
Open Banking tackles various intractable payment problems that PSPs and their customers face head on:
- Coverage – the reach of Open Banking is potentially anyone with a bank account. No subscriptions or additional on-boarding via intermediaries are needed.
- Cost – it’s cheaper than card payments with no ad valorem interchange fees, chargebacks PCI DSS costs.
- Adoption – the consistent, intuitive UX of Open Banking helps to boost adoption and success rates for bank transfers done better.
- Fragmentation – using existing infrastructure gives sellers access to thousands of banks and customer accounts through a single integration. And enables payers to make local bank payments to thousands of sellers worldwide.
- Security – it’s based on bank-grade security without cumbersome 3DS processes, or the exchange of sensitive card data, putting transactions in scope of PCI DSS.
How is Open Banking being used?
Open Banking is the technical rails on which providers run services, so there are countless possibilities for new products and solutions. Here are just three use cases:
Payments – making it possible for sellers to accept payment direct from customers’ local bank accounts quicker, easier and better than ever before.
Financial management – providing a more joined-up view of money, making it easier for consumers and businesses to manage their finances. And enabling providers to tailor products and services better.
Know your customer – helping providers know their customers better, which presents new opportunities around verifying accounts, identities and affordability. This improves access to service and capital as well as management of risk and more.
Why get involved in Open Banking now?