What is Open Banking?

Open Banking definition

Open Banking is a system for accessing and sharing financial data via secure access between different parties, to provide individuals and businesses with a greater choice of personalized financial services.

This data flows between different parties, such as banks, financial institutions such as credit institutions, or fintech, via secure application programming interfaces (APIs).

• Access to current account data (balances and transactions), with the systematic consent of the customer, is made possible by Open Banking and enables the use of financial information to provide services that help customers make business, investment, financing, or spending choices;
• Creating new collection and payment experiences, integrated with management tools to save time and minimize risk at low cost.

 

The PSD2 directive

Open Banking is the result of PSD2, the Digital Payments Directive enacted by the European Parliament in 2015 and officially active in EU countries since 2018.

This legislation was developed to encourage the creation and adoption of innovative payment systems by requiring banks to make their APIs and customer data available to third parties with their prior consent.

This allows bank customers, whether individuals or businesses, to use non-bank providers (or third-party operators) to manage their finances and payment transactions, and to access their account information, even if they are domiciled at different banks.

 

Why is Open Banking a revolution?

Many people value a conservative approach to finance. However, the situation mainly benefited the big banks and not the consumers. There was no room for innovation in the banking sector.

Open Banking is a breath of fresh air compared to traditional banking. It paves the way for the innovations needed in the financial sector and brings it out of its stasis.

Here are the main reasons why we need an open banking system:

• Open Banking increases competition between banks and encourages them to offer better products and services at a better price;
• It shifts the focus from generating funds for banks to improving the customer experience;
• Open Banking gives more room for innovation and encourages companies to find solutions to problems that could not be solved before.

 

Ready to boost your business with the power of Open Finance