Standardised open APIs encourage the development of a large-scale ecosystem where participants can provide interoperable services and mutually benefit from open banking. However, several challenges associated with the universal use of APIs remain. The time and cost for smaller banks and TPPs of adopting multiple technologies that would facilitate their connection to different APIs is a serious impediment for open banking.

In Europe, while PSD2 covers the scope of what it should deliver, the regulation doesn’t specify the details of the dedicated interface that TPPs should use to connect with banks.

Market initiatives are plugging the gap in response. But they too remain local in their scope, with the Berlin Group’s NextGenPSD2 initiative the only API standard to cross borders from its inception. Collaborative efforts such as these bring harmonisation of the API landscape. With many eyes on standardisation efforts in Europe decisions made here will reverberate globally, setting a clear precedent to pursue a global standard at international level.

or open banking to work in practice, it must be underpinned by a significant level of trust. On the one hand it means strong security standards for data storage, access and exchange; on the other, accountability of TPPs accessing clients’ data. Crucially, the banks should be able to verify that a party accessing client data or initiating payments is duly authorised to do so, and it is who they claim to be.

PSD2 provides two types of special authorisations for TPPs and introduces a central TTPs register, allowing banks to conduct necessary checks when an operation is being initiated through a TPP.
Given the number of transactions and payment services that are expected to be channeled through TPPs, state authorisation and registers should prove their reliability in building trust in open banking and its usage by clients. However, while the regulatory certification of TPPs is the preferable form, this isn’t the case in all jurisdictions.

Open banking initiatives seem to be the first step in a much longer journey - the functionality built for it is re-usable and thus can be leveraged further to access broader data sets from other types of service providers.

Targeted data from various sources enables deeper insights about clients, and more accurate understanding of their needs. As the basis on which advanced analytics operates, richer data pools can drive insights, improve client experience and uplift financial services provision.
This opens up a new framework that can build on open banking - open finance, which goes beyond accessing bank account information.

For instance, it could enable clients to view their accounts from different suppliers in one place and help them manage savings, loans, investments and pensions. It could also facilitate switching products or transferring funds between products, to maximise the potential benefits from various providers. However, unlocking these benefits is contingent on releasing data from silos and making it available for sharing.

Looking to Europe from a regulatory perspective, the current handful of solutions fall short of a universal approach to enabling the re-use of all the data sets and gaining clients’ consent.*

Rules only go so far in establishing frameworks for mandatory disclosure of specific information by designated companies. PSD2 sets out the requirements to share data with TPPs are provided to banks; the type of data is also limited to banking accounts. GDPR is another example, and although it has general requirements when it comes to data portability, it is still limited by private data only.

As the result, the data stored by many other companies that consolidate vast amount of clients’ financial data (including companies in other sectors) remains unavailable for clients’ sharing it with its bank or other market participants.

This situation may change, however. Aware of the potential of open finance, the UK FCA has established an advisory group to drive the future strategy of open finance building upon open banking by enabling similar access to a wider range of financial products. In a recently-delivered speech, the FCA’s director of competition, Sheldon Mills, announced that the FCA plans to launch an open consultation before the end of 2019 on how open finance might further develop and a suitable framework.

While implementation of the necessary infrastructure has been completed, it’s fair to say that we’re still at the beginning of the open banking journey. The results and full potential are set to be further explored over the next couple of years. With the infrastructure in place the industry will look into how best to re-use open banking for other business cases, while regulators will help the move to a more open environment in which clients can benefit of the more efficient re-use of their data for better services and bespoke financial solutions.

*This issue is examined in the recent second edition of the Deutsche Bank white paper ‘Regulation driving banking transformation’