Open banking means that banks are opening up to third parties and their own clients. However, for this to work, they have to give up control over the data that they have been managing on their own up to now.
The term “open banking” has been all the rage in the financial sector for some time now in various constellations. Sometimes it is seen as a risk to the banking sector, sometimes as an opportunity for the same banking sector and its customers. Where there is no disagreement, is that it is definitely an innovation for the financial sector.
Open banking means that banks are opening up to third parties and their own cli-ents. However, for this to work, they have to give up control over the data that they have been managing on their own up to now. Customers should thus obtain the possibility to make available their personal financial data to third parties, using an open interface provided by their house bank. The third parties could be other finan-cial institutions, FinTechs or Treasury Management System (TMS) vendors.
Open banking is no longer a few-and-far-between phenomenon but a global trend that was triggered mostly by regulatory framework conditions. In Europe, it was the second Payment Services Directive (PSD2) of 14 September 2019 that set things off. With PSD2, the legislators intended to encourage competition and innovation in the digital eco-system of payment transactions. This will happen by having banks provide Application Programming Interfaces (APIs). Third-party providers recognized by the regulators are to have access to customer accounts through APIs and offer services based on these (e.g. releasing payments or closing a bank account).
On the one side, banks have recognized that they have to act in this regard, on the other side, few of them have actually done anything specific to introduce such APIs. Therefore, the BaFin has given a transition period until when this regulation must be adhered to. Only few financial institutions have made available such services to the market over the past few weeks and months. However, in the near future, the remaining banks will come under pressure as the transitional period granted by BaFin will not last forever.