Open banking – a new dimension of financial services

Open banking is a term that brings significant changes to how we use electronic banking. Customers who use banking services have increasingly high expectations – this is met with a strong response from the banking sector, which, based on legal changes and growing consumer needs, initiates beneficial changes. Find out what open banking is!

 

The activities around open banking are a consequence of the growing needs of consumers and the changes introduced in the functioning of banks. The European legislative system has introduced a number of important improvements that allow for the implementation of solutions that expand the activities of banking institutions based on the permeability of products held by consumers and improve communication between banks regarding data on account holders. However, open banking is not only the possibility to manage several accounts in one bank web application. This is a much broader issue that needs to be adequately discussed. We invite you to learn more about open banking!

What is open banking?

Open banking is a term used to describe all services and technologies in the financial area. This introduces new standards for payment services. In accordance with EU recommendations (PSD2 directive), banks have been obliged to provide other entities with access to the accounts of their customers. Thanks to this, a client of a particular bank, logging into his electronic banking, can see accounts held in other banks. This significantly simplifies the possibility for consumers to assess the state of their own finances. The implementation of open banking has become possible thanks to the adaptation of technology, which operates on the basis of open architecture, legal and business regulations. The Legislation that initiated the changes to open banking was European Parliament Directive 2015/2366 of November 25, 2015. It concerned payment services within the internal market, or what is known as PSD2.

Open banking is not only a simpler way to control your finances. Banks, as part of the service, allow their clients to make convenient transfers: using their electronic banking, they can make a transfer from another bank in which they have an account, but also get a cash loan, a loan or even a mortgage faster and easier. The integration of many accounts makes it easier for banks to verify creditworthiness, thanks to which offers will be even better adjusted to the profile of a given client. The banks have access to the transaction history – in this situation, no additional documents are needed to obtain a banking product. A bank simply knows that a client’s account is credited with a salary, what liabilities they have and even how they manage their finances.

Thanks to open banking, financial institutions can more effectively reach the right customers with their products. The personalization of offers will also help build relationships with customers in a way that was previously unattainable for financial institutions. This also builds greater trust among users in banking services that better suit their needs.

Open banking is primarily associated with greater convenience for the consumer, who can check all his payment accounts (even from different banks) from the level of a single application and perform actions previously requiring the launch of several systems. It also solves the problem of transfers between banks; they can simply be faster. Creditworthiness verification will also be less of a problem, as access to several accounts makes it easier to apply for a loan.

Thus, it can be considered that open banking is a set of solutions that make consumers better able to manage their finances – with access to products of a completely different, better quality. It results from the fact that these products are better personalized, tailored to their needs. Financial institutions, having access to many bank accounts of a given client, are able to control his creditworthiness and possessions in order to prepare products that will fit the needs of a particular person. 

It is no secret that creating a “global” banking product is less effective than a highly personalized offering that is tailored to the needs and abilities of the individual customer. In this way, the client receives exactly what he needs at any given moment – and at the same time he has a great opportunity to control his own finances. Banks, on the other hand, can make much more secure decisions about granting credit. In addition, they will not require as many formalities as at present. Taking out a mortgage in Poland requires (still) many documents: preliminary agreements, extracts from the land register and many, many others. Thanks to open banking, many of these processes can be simplified – involving less human resources, energy and commitment of the clients themselves. Open banking is a state that will work for absolutely everyone – the PSD2 directive is a document that significantly translates into customer convenience and greater freedom for banks to create excellent financial products. 

Is my financial information safe?

Open banking is a completely secure process. Customer data is protected by the latest technologies and highly sophisticated security standards. In addition, it should be remembered that it is the customer who ultimately decides to whom he gives his data, giving the appropriate consent.

Changes resulting from the PSD2 directive impose strong authentication on financial institutions. This means that when performing any operation in e-banking or mobile application, the system will ask for additional confirmation, e.g. in the form of entering a one-time code (two-factor authentication) or adding a biometric identifier (fingerprint or face scan, e.g. Face ID).

So you can be sure that with open banking, there is no risk of the security of banking services diminishing. On the contrary. Banking institutions operating in the digital world are obliged to implement security procedures, which will certainly become very important additions to increase the level of customer confidence in banking service providers. Additionally, every customer has the opportunity to control how much information about themselves they want to share with a particular banking institution. If he decides that he does not want to take advantage of the opportunities that arise from open banking in the form of servicing several accounts within one mobile or web application – he will not be forced to do so. This type of approach even more strongly supports the confidence of users in what open banking brings in practice. 

A huge role in open banking is played by technologies that we are already using today, but not all banks are implementing them to the same extent yet. Two-factor authentication is the standard for most services – banks, we believe, are well prepared to handle this type of security. Other solutions, such as tookeny, biometric authentication, physical keys, on the other hand, are what comes directly from open banking and are fully supported by this process. People who are active users of banking services will certainly appreciate these changes and will be even better protected. This means that it will become increasingly difficult for cybercriminals to launch successful attacks that target bank accounts. Of course, phishing is still a huge problem, but according to our observations – this method of attacking users of banking services is also becoming increasingly difficult to execute.

More and more web browsers, security suites for Android, iOS, Windows, macOS flawlessly recognize sites that can phish users of any services. Hence, a user timely informed that a particular site may contain potentially malicious code – will have a chance to back out of sharing information with criminals.

What are the capabilities of open banking?

Under open banking, the user of banking services gets access to a number of important capabilities. Many of them are typically functional issues, others are dedicated to the security of banking services customers. 

Under the PSD2 directive, which introduces the principles of open banking, the bank, as well as authorized Third Party Providers (TPPs), may provide payment services under the PSD2 regulations in accordance with the applicable standards.

The new services operating under open banking are:

• AIS: access to information about your account (Account Information Service)
• PIS(P): to initiate payments from your account (Payment Initiation Service (Provider))
• CAF: Confirmation of the Availability of Funds on your account

These services may be provided by domestic and EU payment service providers if these providers are fully authorised to provide payment transaction initiation services.

Open banking – pros and cons

Open banking is irreversibly changing the payment services market. Personalization of offers, security of information and quick response to clients’ needs are only some of the advantages it brings. Introduction of open banking principles to definitely improve the relationship between the client and the financial institution. The bank has an opportunity for more frequent interactions and increased sales of additional products, in return for which the customer receives a personalized offer, thanks to which he will not look for the needed services elsewhere.

The customer has a full picture of his finances. An e-banking user can manage all his finances in one place, which makes planning expenses much easier. Additionally, the access to all accounts speeds up the process of credit capacity assessment, thanks to which the client can count on a better credit offer or easily get an overdraft.

It is also important to use modern solutions such as artificial intelligence. It not only eliminates the need for tedious and repetitive work by bank employees, but also minimizes the risk of mistakes and improves the efficiency and effectiveness of decisions.

However, each solution also has its drawbacks. Currently, the biggest problem may be handling open banking solutions by elderly people. People over 50 years of age, who are not so proficient in using technological novelties, are a very wide customer base of banks and should not be forgotten when dealing with changes such as those brought about by open banking. There is no denying that modern banking appeals mainly to the generation of today’s 30-year-olds and younger people, who actively use social networking sites, can virtually contact a bank employee or willingly use tools that are supposed to help them manage their finances. Nevertheless, the world is moving forward and banks should certainly invest in this direction of development.

Experts fear that open banking may intensify the process of building social exclusion. Older people may not be able to keep up with the changes that open banking introduces. Some people over 50 have only just got used to electronic banking, internet banking, payment cards, and already a kind of revolution is taking place that is turning upside down what these people have learned over the years. Countries like Poland are not young societies and banks may have a problem to convince these people to open banking in a short time. And with solutions like open banking, the time it takes for solutions to be implemented and adopted by consumers matters a lot. At the same time, banks will have to maintain solutions that do not fit with the idea of open banking all the time because of people who will not adapt quickly to the novelties introduced. This, in turn, may cause modern open banking solutions to be developed more slowly due to limited resources of banking institutions.

Modern way of electronic banking

Mobey Forum, an international non-profit organization dedicated to technology in banking, decided to survey bank customers from five European countries that have implemented open banking solutions to varying degrees – from the pioneer of the solution, the UK, to Finland, where only a few banks have introduced access to accounts at other banks from a single account.

Mobey Forum asked about the most popular services that open banking could enable. Extremely or very interested in such solutions averaged 33 percent of respondents. Most respondents were interested in verifying identity through a bank account and comparing financial products (both 35 percent), and the least – (25 percent) were interested in quick loans and installments. The average interest of users aroused Pay-by-Bank (33 percent) and the possibility of access to different bank accounts from one platform (32 percent).

Access to multiple accounts through a single account is the first of the open banking services to gain popularity in Poland. Access to various bank accounts in one place is currently used only by about 2% of Europeans. However, there are many more interested. Very and extremely, 32 percent, and together with the average interested – 72 percent. The most interested are of course users of 3 and more accounts at once, but even among those who have one or two accounts it is not much less. Interest also does not vary by country. The vast majority of users would like the information about their accounts to be available from their main bank (88 percent). For 6 percent, such a possibility could be offered by another bank, and for 6 percent – by a non-bank entity.

Are you developing open banking solutions? Are you interested in developing this type of project? Contact us, we will show you how to turn your ideas into perfectly working software. 

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