Open banking and the future of Financial Services
Updated: Sep 10, 2020
Across the world, we’re starting to feel new pressures, both regulatory and customer-led, that are opening up the market to new entrants and disrupting the financial services industry. To be more specific, the Revised Payment Services Directive (PSD2) is going to change the way European banks have traditionally operated. And this isn’t unique to Europe. The success of Mint.com in the US says a lot about the consumer’s appetite for account aggregation or Account Information Service Providers (AISPs), in PSD2 language. The PSD2 provides a legislative mandate for more open data and an increased open data interchange between financial services institutions. Starting January 2018, European banks must safely provide access to customer info (e.g account balances and details) to AISPs. In addition to that, banks must securely expose customer information and payment services to Payment Service Providers (PSPs) such as Venmo and PayPal.
Believe it or not, this is a good thing for banks and other financial institutions as they can now take on the role of AISPs and PSPs themselves and tap into new revenue streams. They can easily accomplish this through the effective use of APIs built around the principles of API-led connectivity. This opens the door for open banking, which is essentially the use of open APIs that enable third-party developers to build applications and services around the financial institution. Players in the financial sector that see open banking as an opportunity to re-define and prioritize what value they add to the value chain will be the winners both in the short and long term.