Ammar Faheem | Director Product Marketing (CIAM)
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Ammar Faheem | Director Product Marketing (CIAM)
More About This Author >
E-commerce is now a fact of life.
Whether buying groceries with one click on Amazon or ordering a taxi on your phone with Uber, customers worldwide increasingly rely on the convenience of online services.
In the banking sector, new innovative services based on open data, also known as open banking, are increasing.
In short, open banking means opening customer account information - accessible via APIs - to third-party providers.
Yes, it's BIG.
The result?
New actors will change the traditional banking landscape.
- New third parties, like account information service providers (AISPs), can provide consumers with visibility across all their banking accounts via a single app.
- Payment initiation service providers (PISPs) can offer consumers an easy means of making direct fund transfers for online transactions.
The bank of tomorrow is the one that not only sees these changes on the horizon but also adapts to this new environment.
Otherwise, customers are more than willing to move on with a financial partner that can provide the services they seek.
According to a Thales poll, 38% of those surveyed would leave their bank if another provider offered better services or better rates.
It's a call to action.
Open banking is here
The revised Payment Service Directive (PSD2 ) fosters the development of innovative services based on open data in the banking payment landscape.
In particular, it aims to encourage the creation of alternative Internet payment methods across all common types of devices (e.g., computers, tablets, and mobile phones) by allowing third-party providers equal access to customer account information and transactional approval.
There's more.
PSD2 specifies that consumers have the right to use any third-party provider for their online banking services.
As a result, banks are mandated to provide open Application Programming Interfaces or APIs to allow software at one company to access payment account information and payment initiation from another.
There has been significant adoption of open banking technology across the financial services sector.
As of 2024, open banking adoption in Europe was projected to reach 132.2 million users, driven by strong regulatory frameworks and increasing consumer demand for digital financial services.
The move to open banking means removing barriers between competitors as it requires banks to allow their account details and transactions to be shared with third parties through APIs.
Why is open banking a big deal?
Open Banking creates a gigantic shift in the world of banking. It can rebalance the relationship between businesses, financial institutions, and customers.
Open banking and the rise of the digital economy
Open banking plays a significant role in the rise of the digital economy as it makes payments easier and more transparent.