An industry insider identifies heightened user awareness and knowledge on mechanisms surrounding open banking, the EU’s PSD2 directive with its new security requirements, and the spreading standardisation of APIs as some of the critical open banking trends in 2019

Open banking, or the system within which banks open up their data for third-party developers to create new services or apps, has powered a revolution in financial services. Banks no longer have the monopoly on customers’ data, while fintechs, one of the principal beneficiaries of open banking, are growing at a tremendous rate.

Anton Zujev, Head of Business Development at Fininbox, a Banking Software as a Service (SaaS) provider for electronic money and other financial institutions, commented on three of the key open banking trends in Europe in 2019.

Heightened user awareness

One of the crucial developments this year is heightened user awareness and knowledge on mechanisms surrounding open banking. Users of financial services are increasingly familiar with the benefits and risks that this new financial paradigm entails, even if there is still much room for improvement.

“Whether it is comprehending the risks and benefits that come with new ways of handling one’s finances or understanding how consent apparatus works, the users are becoming more knowledgeable by the day,” said Anton Zujev. “However, general Open Banking knowledge is still lacking, and both the financial institutions and the regulators will have to continue to invest in educating the users, as users’ trust in this sector is essential for its development.”

Second Payment Services Directive (PSD2) and new security requirements

Handling of data, especially of financial data, is being heavily influenced by Open Banking, too. If the banks of the past owned the customer data, Open Banking has changed this. Right now, the bank’s customer’s data are merely being protected by the bank, but it can also be passed to third parties like fintechs.

A core regulatory development that shapes how banks and other financial institutions are and will handle their data is the European Union’s Second Payment Services Directive (PSD2). In effect since 14 September 2019, the directive is aimed at promoting innovation, helping banking services to accustom to new technologies, and ensuring payments in Europe are secure.

“Regulation wise, PSD2 is an important stepping stone for the development of the whole Open Banking field in Europe,” added Mr Zujev. “What I see as crucial in the PSD2 is the new security requirements, or Strong Customer Authentication (SCA). According to the SCA, at least two authentication factors have to be used when executing a bank operation, which wasn’t the case before PSD2.“

Standardisation of APIs

What enables Open Banking in the first place, however, are Application Programming Interfaces (APIs). Put simply, third-party developers use APIs to draw open data from a financial institution which is then used to create applications that enrich the experience of the user.

“For Open Banking to reach its full potential, the APIs will have to become a lot more standardised than they are now,” explained Mr Zujev. “We see how beneficial the presence of a common standard is in the UK, as it is widely used by the companies there. Standardisation fosters the spread of innovative financial solutions, because third party providers – for example, fintechs – that use standardised APIs don’t have to adapt to different technology every time they connect to a new entity. This process is slowly catching speed, and I expect to see substantially more of it in the future.”

Certain places, like the UK or Singapore, are already ahead of the curve when it comes to Open Banking and companies offering innovative financial solutions. But one research suggests that Open APIs, in one form or another, are already present in 87% of the countries in the world. If this is indeed the case, 2019 might have been one of the breakthrough years for the industry.