Open Banking refers to the standardised and secure provision of account information and payment services via APIs, whereby banks grant authorised third-party providers access to customer data – always on the basis of user consent. In the EU, the PSD2 directive forms the regulatory basis for these interfaces and their technical implementation.
Open Banking – a definition
Open Banking describes the standardised provision of interfaces (APIs) through which banks grant authorised third-party providers access to payment transaction data and account information – with the express consent of the customer. In the EU, APIs are based on the technical requirements of the PSD2 directive (e.g. XS2A – “Access to Account”) and enable functions such as account information services (AIS), payment initiation services (PIS) and strong customer authentication (SCA). The aim is to enable interoperable, secure and automatable financial processes between banks, FinTechs and business applications.
What concepts are there for Open Banking?
Open Banking can be divided into two basic concepts: the regulatory-driven and the market-driven model. While regulatory Open Banking – for example as part of PSD2 in the EU – is based on legal obligations and standardises access to accounts, market-driven approaches develop independently of regulation, for example through bilateral API agreements or extended data usage. Both models exist in parallel and complement each other by promoting innovation and addressing different needs. Market-driven Open Banking often offers more flexible functions that go beyond PSD2.
Technical requirements for Open Banking
Standardised, secure application programming interfaces (APIs), through which banks enable authorised third-party providers to access account data and payment services, are of central importance for the implementation of Open Banking. Key technical requirements include strong customer authentication (SCA), a reliable authorisation and access concept and compliance with API standards such as Berlin Group (NextGenPSD2) or UK Open Banking. In addition, a stable infrastructure for monitoring, error handling and certificate management (e.g. eIDAS certificates in the EU) is required to ensure secure data exchange and compliance with regulatory requirements.
Advantages for banks
Banks benefit from Open Banking by being able to tap into new digital business models and develop innovative services together with third-party providers. The standardised exchange of data promotes more efficient processes, has a positive impact on customer loyalty and accelerates the integration of external solutions. Open Banking also strengthens competitiveness, as banks can position themselves as platform providers and tap into additional sources of income.
How consumers benefit from Open Banking
Consumers also benefit from Open Banking through greater transparency, better control and greater convenience in handling their financial data. They can manage various accounts and financial services centrally, receive personalised offers and use new, digital services such as budget book apps or automated payments. At the same time, they retain control over their data at all times, as access is only granted with their express consent.
A brief history of Open Banking
- Before 2010:
Financial services are mostly closed; banks control all customer data and services internally. - 2010s:
First FinTech start-ups use APIs to develop innovative financial apps, mostly with screen-scraping techniques. - 2015:
The EU starts developing the second Payment Services Directive (PSD2) with a focus on secure access to bank accounts by third-party providers. - 2018:
PSD2 comes into force – banks are obliged to provide APIs that allow third-party providers to access account data with customer consent. - Parallel to this:
Market-driven Open Banking initiatives emerge worldwide, for example through cross-industry collaborations and bilateral API agreements. - Today:
Open Banking is establishing itself as a standard, promoting innovations in payment transactions, financial management and new business models in the banking and FinTech sectors. - Outlook:
Open Banking is developing into Open Finance, with more comprehensive data exchange beyond financial products.
Summary
Open Banking stands for a new, networked financial world in which the secure and standardised exchange of data via APIs enables key innovations – both regulatory and market-driven. As a result, banks are opening up new business models, improving processes and strengthening their competitiveness, while consumers and users benefit from greater transparency, control and convenient digital services. The technical foundations and regulatory framework – above all the PSD2 directive – ensure security and trust. Overall, Open Banking creates the basis for future-proof financial ecosystems with added value for all stakeholders.
