Open banking means customers having control of their financial data and being able to share it with third-party service providers. To technologists it means API access to accounts, which opens a whole range of possibilities, but as it is introduced to corporate banking, it also opens a can of worms.
Open banking has its roots in the consumer protection legislation intended to increase competition among banks by making it simple for account holders to compare costs between institutions and swap to cheaper suppliers.
With the introduction of the European Union’s second Payment Services Directive (PSD2) earlier this year, all banks will have to share data with what the Directive calls Trusted Third Parties, opening up a range of new service possibilities, from account aggregation services that display all of an individual’s accounts at different banks, to financial advisory services using AI.
In general, banks are not allowed to charge for providing this access, and in practice, the regulatory requirements specify only some data fields and are limited to retail and small business accounts.
This leaves the lucrative and largely underserved corporate banking sector, which is ripe for the introduction of API-enabled services that, along with the real-time account information provided by immediate payment infrastructures, will allow banks to significantly enhance their services to corporate customers.
Some of the largest banks in the world, and other service providers such as accountancy firms, have readily embraced this, but there is a snag: whereas consumer access to accounts is defined by regulation, the corporate equivalent is not, and there is a danger that there will be a proliferation of APIs, making management an issue.
There are efforts in place to minimize this and introduce a degree of standardization. These include the UK’s Open Banking Working Group, the Berlin Group in Germany, a French grouping, and an informal grouping of US banks. Industry bodies, including Swift and the Banking Industry Architecture Network (BIAN), have also made moves and are working for the greater good, but a more formal, unified effort involving all interested parties (banks, corporates, fintechs, and IT vendors) will be needed to fully reap the benefits on offer.
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