What is Open Banking?
Speed and convenience are accelerating open banking adoption around the world. But what exactly is it?
Open banking is designed to make our lives easier by allowing consumers and businesses to enable third-party apps to access financial data instantly and securely. Use an app to pay back friends after a night out? Open banking makes that process seamless. Transfer money between accounts at different institutions to buy stocks? Open banking takes the friction out of that transaction, too. Use a budgeting app to track spending? You get the idea.
In all these cases and many more, open banking allows users to access innovative digital banking and financial services online or through any smart device. In the Central and Eastern Europe Middle East and Africa (CEMEA) region alone, open banking fintechs have raised over $100 million since 20191. And as merchant demand increases and the user experience improves, the number of people exposed to open banking will only increase. Across CEMEA, the pace of regulatory change is evident; the Central Bank of Nigeria2 published operational guidelines on open banking in March 2023, while the National Bank of Ukraine is expecting a rollout of the technology by August this year.
How does open banking work?
Consumers and businesses can authorise a digital app to access their financial data through application programming interfaces (APIs). These APIs allow a company’s software to “plug into” and access information from the software at another company in real-time. Third-party aggregators, act as a bridge between account providers (such as banks, brokerages, and credit unions) and the kinds of third-party apps you might use to track your budget, trade stocks or pay back friends, making those services accessible all from the convenience of a connected device.
Open banking gives consumers and businesses a fast, transparent, and accessible way to track, spend, borrow, and invest their money. A small business owner, for example, might connect her business account to her lender to help apply for a business credit card with special offers and rewards, or access a business loan — without having to compile years of statements. She might also streamline backend operations and analyse her finances more conveniently.
Likewise, financial institutions can give their customers better insights and more convenient services through open banking platforms, while fintechs continue to innovate, design and build better consumer and business solutions and experiences through open banking technology.
Trust is foundational to open banking
Open banking is focused on empowering consumers and businesses with better financial services and experiences, all of which starts with trust. Trust is built on the value that open banking-powered services can deliver by building safe and secure connections. It’s reinforced through transparent consent management practices that give consumers the power to authorise an app’s access to their financial data and withdraw that access at any time.
Central banks in the CEMEA region have also embraced open banking’s potential, while supporting the maintenance of trust among stakeholders in the payments ecosystem. The Central Bank of Bahrain, for example, launched a regulatory sandbox in 2018 – when the country began its open banking journey, and Bahrain has since become the first country of the Middle East as North Africa region to implement technical standards of the market3,4.
The Saudi Central Bank (SAMA), meanwhile, is developing its open banking initiative, which is in line with strategic priorities set out in the Saudi Vision 2030 and in the Financial Sector Development Program. SAMA believes that open banking represents an opportunity for stakeholders to leverage the data associated with financial transactions to imagine and access new ways of managing money, while bringing the benefits of better financial products and services to customers through the secure sharing of data. SAMA adds that open banking will “enhance trust both in customers and market participants”5.
The future of open banking
As consumers, businesses, financial institutions, and governments continue to uncover the potential for open banking, demand has emerged for innovative ways to harness data.
Open finance is making broader data, such as from mortgages, pensions, and insurance, more accessible by trusted third parties, with consumer consent. The adoption and expansion of open banking could also mean more opportunities for unbanked communities to engage in a secure global economy. Ultimately, open banking could uplift more communities around the world by helping them better track, spend, borrow, and invest in their future through innovative digital services.
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1 Central Banks, BIS “Funding for fintechs: patterns and drivers”, Open Banking Directory
2 Operational Guidelines for Open Banking in Nigeria, 7 March 2023, https://www.cbn.gov.ng/Out/2023/CCD/Operational%20Guidelines%20for%20Open%20Banking%20in%20Nigeria.pdf
3 The Bahrain Open Banking Landscape, Open Bank Project, Arthur Descazeaud, 13 February 2023
4 State of Open Banking in Europe, Africa and the Middle East, PYMNTS, 21 June 2022, https://www.pymnts.com/emea/2022/state-of-open-banking-in-europe-africa-and-the-middle-east/
5 Open Banking Policy, Saudi Central Bank, https://www.sama.gov.sa/en-US/Documents/Open_Banking_Policy-EN.pdf
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