The unfolding landscape of open banking
Underpinning progress in the open banking space are regulation and innovation. As regulatory sands shift, and developers adopt technological opportunities, businesses should be poised and confident moving towards open banking.
Understanding the global landscape
The two fundamental drivers of open banking are regulation and innovation
Historically, it was the European Payment Services Directive PSD2 and UK’s Open Banking Initiative that led to the development of the open banking sector. It’s unsurprising, then, that trends to emerge in Europe and the UK have had a strong bearing on the unfolding global landscape.
The UK is probably the most advanced in terms of open banking, but European, Baltic and Nordic countries are following. Recent efforts to regulate have been made in Australia, Canada and Latin America – which have seen the sands shift, and opportunities arise, elsewhere across the globe.
With the arrival of PSD3, a range of challenges currently faced in open banking may evaporate and we’ll see an invigoration in the open banking space. Medium- and large-sized enterprises are, undoubtedly, monitoring the open banking sector, and once one of them implements the solution and demonstrates success others will follow.
The benefits of open banking are manifold: payments can be made and received faster and more smoothly across borders; businesses can provide goods and services more swiftly and efficiently; consumers can be satisfied not only with the payment experience but also with the speed of goods received. As such, open banking delivers positive outcomes for businesses and consumers.
Opportunities from regulation and innovation
The two fundamental drivers of open banking are regulation and innovation. Regulatory developments bring greater confidence in the open banking space; improvements, expansions and developments in regulations have the effect of helping businesses feel more confident and secure in implementing open banking payments.
On the innovation front, exciting opportunities are arising for businesses and fintechs. One example is where an AIS solution is combined with a PIS solution in open banking: not only can customers receive a good payment experience, but businesses can analyse customer behaviour afterwards – to predict or suggest further spending. Ultimately, businesses can know their customers better and provide tailored solutions to suit.
Currently, too, more banks are building advanced APIs to allow third party developers to create user-friendly and useful applications. With third party developers being able to access customers’ financial data, they can provide a better service for end users.
Innovations in the future will certainly involve artificial intelligence (AI). And whoever is the first to implement AI in open banking effectively will be the winner. It is fintechs who have the main hand in shaping the open banking landscape through innovation – and who are making open banking services easier and more popular, driving outcomes for businesses and customers.
Challenges and opportunities in markets and industries
It will thus be a combination of regulation and innovation that will inform the shape of things to come. Businesses and fintech firms who are prepared and confident to move into markets as the regulatory landscape shifts will be well positioned.
As a specific example, a current barrier for both consumers and businesses in Germany is the requirement for IBAN numbers to complete payments. This creates a friction for the end user, who, chances are, does not know their IBAN number by heart and might hesitate on a purchase as a result. If this requirement is resolved in the future through regulation, we can expect a boost to open banking. As such, when industry announces that a known issue, such as the IBAN requirement, has been resolved in a particular country, businesses can feel more confident.
Examples of specific industries that I expect will increasingly move to open banking will be retail, in the near future, and beyond that, travel. Fintech is also another industry of interest. Loan and credit companies, for example, are slowly moving towards open banking.
Open banking strategies and solutions
For businesses who are already employing open banking within their strategy, my advice is to make sure you’re well connected with your open banking provider. Ultimately, they’re the ones who can analyse your customers’ behaviour and provide feedback to you on it.
For businesses thinking about implementing open banking, it’s important to conduct a close analysis of impacts and benefits. Further, if you’re looking for an open banking provider, it’s important to work with a provider who is familiar with the markets you want to operate in and expand into. This is particularly important in meeting challenges such as the need for a local bank account in a specific country.
At Ecommpay, we have developed our Open Banking Advanced solution which allows us to collect funds on behalf of merchants from customers. We aggregate the open banking payments for merchants so there is no need for them to worry about the collection of payments; and this includes refunds. We provide a dedicated local bank account where all the banking payments are collected and include features such as real-time payment information.
We have also developed an offering whereby we serve as a hub for open banking providers, helping them provide value-added services across specific industries, and supporting them with our 11 years of industry knowledge and expertise.
In an unfolding landscape, where regulations shift and innovation proliferates, the open banking landscape will see challenges dissipate and opportunities arise. Businesses should feel confident moving towards open banking. If they’re ready to move, they’ll reap the rewards.
Listen to the What the Fintech? Podcast featuring Arthur Ribakovs, Ecommpay’s director of financial partnerships
Sponsored by Ecommpay, the winner in the Best Use of Tech in Combatting Fraud category at PayTech Awards 2023
