Open banking has been a hit across the world stimulating technological development within the financial sector. The growing level of standards transformed into 423 open banking platforms and keeps increasing – states Q3 2020 Open Banking API Trends. Open banking API emancipated over 2800 Application Programming Interface (API) related products alternating the landscape and use of payments within the financial sector. The interaction between a financial institution and a consumer has changed significantly which led to new partnerships and opportunities that were unimaginable just a few years ago.
No matter how great the new developments and advancements in the industry sound it sure brings along new challenges and technological requirements. In this article, you can find out more about the changes that open banking APIs have brought and develop a deeper understanding of the industry standards and regulations across the world.
The regulations of open banking APIs
Open banking is not a new concept and has been around for over ten years. However, Europe is considered to be the leader of open banking APIs since the introduction of the Payment Services Directive (PSD) in 2007. The amended regulation that took effect not so long called The Revised Payment Services Directive (PSD2) has further advanced the leadership across the world. The open banking standards brought by PSD2 aims to harmonise the digital payment environment for Account Information Services (AIS) and Payment Initiation Services (PIS) while utilising open banking APIs. The majority of resources went and still go to the aforementioned services, however, the more innovative financial institutions have moved beyond them and started the expansion of their digital capabilities.
For instance, Singapore has published an API Playbook created by the Monetary Authority of Singapore (MAS) which ignited the application of open banking in the region while creating a secure digital environment. Although there is a lack of standardisation it does suggest common ground for the API development and offerings together with the best case scenarios, application examples and a registry of currently available APIs.
The open banking history in Australia started from data sharing rights. The big four Australian banks – CommBank, NAB, Westpac and ANZ – were required to implement the beginning of open banking API based on The Consumer Data Right (CDR) regulation. The deadline for the delivery was set on July 1, 2020, and included credit and debit cards together with deposit and payment data.
Later in the same year on November 1, 2020, the mortgage and personal loans followed. The other banks in Australia, excluding the big four, had a later deadline for the open banking implementation which was set for July 2021.
The rest of the world takes a less regulated approach and allows the development to happen on its own. For instance, the US, Japan and Canada have provided non-binding guidelines to have somewhat standardised open banking within the region. As mentioned in the brief ‘Developments in Open Banking and API’s: Where Does the U.S. Stand’ created by the Federal Reserve, the US out of all countries is the least likely to implement open banking regulations as it has a complex and fragmented regulatory policy which complicates the open banking adoption by the financial market and limits its growth. Nevertheless, the financial institutions together with technology-focused businesses aim to impede open banking in the US since it could significantly enhance the quality and offerings of digital services to their clients.
The open banking APIs are becoming a banking industry standard and creating endless opportunities for growth while allowing easy access to financial information. The most important point to success is the awareness of the regulations in the geographical area where the business is conducted and utilising available tools to overcome arising challenges.