As you’re reading, you may be unaware that a new legislation being put through the EU has the potential to disrupt hundreds - nay thousands! - of years of retail banking. In 2018, the technology that will most likely transform the financial services industry is not blockchain or A.I, but open banking.
"Open banking is a revolutionary technology that will radically change the way we interact with and use financial services."
So, what is Open Banking?
It is a concept that allows banks to share customer data with a third-party developer, securely and in real time, through the use of an open application programmable interface (API). Now, some of you may be thinking “What the hell is an API and why should I care?” Well, it’s actually good news for you in this case - the technology will be a game-changer - potentially making managing your finances a lot easier.
“An API is like a waiter in a restaurant - it connects the customer with the chef, and vice versa. Without it, service is sub-optimal.”
So, first things first. WTF is an ‘API’?
When thinking about APIs in the context of open-banking it helps to think of an API as a key that unlocks all your transactional data. Right now, the banks have possession of that key rather than their customers. However, the payments and services directive (PSD2) is going to change all that. It’s a directive in the EU that requires banks to have a working API that can securely send data and services. And it’s all coming to Australia; the government has got the ball rolling by commissioning a review into open banking. For those that want the full lowdown James Eyers in the AFR gives a great explanation of the PSD2, the impact of open banking in the UK, and the Australian regulatory climate.
Big deal, so what if banks are sharing their data around?
Well, just imagine a world where any third-party developer could have access to a platform like an app store that provides a sort of plug-and-play environment for all your financial needs.
Jason Bates from Monzo says it best; “APIs enable end-to-end customer journeys through the integration of data and digital services from different partners”. Ultimately, having access to financial data means businesses can develop services that they can tailor for you based on your prior purchases. They’ll need your consent (again, the customer will hold the data key) but it has the potential to make a lot more of what you’re offered relevant to you.
More simply, it will make managing different financial services across different providers much easier, with less repetitive paperwork as you move from one to the other, making it easier to switch when you want to.
“What Uber has done to taxis and AirBnB to hospitality, open banking could do for the finance industry.”
Open APIs + sharing economy = Ultimate financial disruption
If Silicon Valley has taught us anything about problem solving it’s that lowering barriers to entry and crowd-sourcing breeds creativity. Customers will be interacting with user interfaces designed by third parties rather than the banks themselves, which in turn means banks will up their game in terms of the quality of user experience they provide and banking is going to be a whole lot more competitive. If banks can develop and innovate their own services and expand their products in a consumer facing way they have the potential to really expand services by driving innovation.
Open banking….like winter...is coming
Arguably open banking is inevitable. It is part of the global movement to make everything ‘open’ and restore some control for consumers. However, it’s complex and it will take a while - there will be resistance from the legacy banking system, and the security issues need rigorous attention. Whilst the Open Banking Standards have been set in the UK and some specifications defined, consumers there are unlikely to see any impact for at least another year.
Bring it on
At Xinja we are made for this. We are launching with APIs - partly so we can be completely transparent to the regulators, but largely so that our customers can have access to and control of their own data. The government has said it will be asking for submissions as part of the review, and we will definitely be making our own suggestions. It’s all part of developing a bank not designed around the needs of the bank, but those of its customers.
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