The Open Banking Standard: The open banking road map
The U.K. has been working on an open standard for its financial system for nearly a year. This initiative aims to protect customers and give them more options, create greater competition while encouraging innovation in banks. Other European countries are closely following the project because the creation of a standard would significantly contribute to accelerating the implementation of EU rules on data and banking.
In September 2016, the Open Banking Working Group (OBWG) was created on request by HM Treasury. Several months later, in early 2016, this working group published a manual, The Open Banking Standard, which indicates how financial data should be created and shared and how access to financial data should be provided.
The OBWG began this project with the goal of analyzing how data could be used to help people save, conduct banking transactions, apply for loans or invest their money. They also sought to homogenize the sector’s regulation.
The idea of an Open Banking Standard arose from the need for a model that establishes how data should be shared in the financial industry. Customers currently demand data to be shared quickly, but this new way of sharing is not always easy due to technical barriers. Also, a guide is needed to protect data privacy. Once again, the country that that has set out to do so is the U.K. – one of the pioneers in the fintech sector.
The Open Banking Standard recommends the use of open APIs for banking transactions in order to provide shared access to data. But it’s important to note that an “open API” does not mean that the data included is out in the open, rather that it allows the technology and standard itself to be opened. In fact, access to private data in an open API can only be obtained with consent from the data’s owners and must also follow technical and security standards.
Who owns banking data?
The data produced in financial transactions belong to several parties. Banks and customers have to give consent for their results to be used by third parties. Financial institutions have data on products, services and transactions and can provide access to them through open APIs.
The standard model suggested by the OBWG would apply open licensing to information on financial products. This would allow customers and developers easy access, and banks could reach as many potential customers as possible.
How would this standard benefit customers and the sector?
This road map will benefit professionals from several fields:
- Developers: The standard provides guidance regarding how to open, access and share data. This “regulation” will help professionals develop more specific services that meet the real needs of customers and suppliers.
- End customers: They will have more options to decide what financial products they need. They will also be able to purchase different products and services more easily. The use of open APIs in the sector will allow them to find the products that best meet their needs.
- Banking industry: Customer relations will be simplified, which will allow banks to improve their services, increase their customer base and boost customer loyalty.
- Banks: Banks will be able to offer better conditions and use the transaction history to determine the level of risk of a loan.
- Small businesses: Their bank’s API will help them with payment matching and save time with online accounting.
- Fraud detection companies: With transaction data securely shared, fraud detection companies can offer customers better monitoring and notification services.
The standard model suggested by the OBWG would apply open licensing to information on financial products.
Technical steps to define and implement and open financial API
The Open Banking Standard suggests building an open, federated and networked solution, as opposed to a centralized system. This will enable greater scope for innovation in design and development.
The open APIs should be made available under a license that permits it to be freely used, reused and distributed. The standard has lowered barriers to participation to foster an extensive community of developers.
Most of the work related to applying and promoting the Open Banking Standard is not technical. If consumers are willing to take advantage of the opportunities it offers, they are more related to governance, security, liability, regulation and legality. First of all, it is recommended that an independent authority be created to oversee what has been agreed and ensure its compliance. Second, users (individuals, companies or governments) should be aware of their rights and responsibilities when sharing or managing data because it is “everyone’s responsibility”.
This standard is expected to enter into force in 2019. Work is currently underway to develop the open financial API’s minimum variable product (MVP). Meanwhile, according to this standard, transaction data will be made available to the public throughout 2017.
Click here if you would like to read the Open Banking Standard’s full report.