Open Banking is the practice that allows third-party financial service providers to securely access consumer banking, transactions, and other data from banks and financial institutions.
From the customer perspective, it gives you the control of your data. With Open Banking, you can share your economic information with other banks or other financial institutions so you can compare products, save money and easily manage your accounts and transactions.
Open Banking has a regulatory origin. In 2015, the European Parliament adopted the Payment Services Directive (also known as PSD2) enforcing banks to develop a set of regulated APIs. This allowed service providers to easily connect into customers accounts (securely and with their consent), and offer new innovative services.
It wasn’t long before customers, companies and other countries realized the giant potential of Open Banking, and its adoption has quickly spread all over the world. In Q2 2022, according to Platformable, more than 1500 banks had APIs available (8% growth compared to 2021).
Use cases: AISP vs PISP
If a financial service provider wants to offer Open Banking services in Europe or the United Kingdom it has to be authorized as an Account Information Service Provider (AISP), a Payment Initiation Service Provider (PISP) or both.
AISPs provide a service called Account Information Service (AIS) by collecting financial information that is read-only. They can gather data from various bank accounts, but they are not able to initiate any actions, such as making payments, from those accounts.
Some examples of AISP applications: personal finance management tools, budgeting apps, loan applications (credit score tracking), aggregators from multiple banks into one place.
PISPs, on the other hand, provide Payment Initiation Service (PIS), that allows them to access financial information and also initiate the transfer of money from a customer’s bank account. This means avoiding intermediate fees, going straight to the bank and avoiding fees to card networks or payment gateways. Customers must give their consent for these payments and can revoke their consent at any time.
Some examples of PISP applications: online payment platforms, mobile payment apps, peer-to-peer money transfer services.
While working at Parser, I had the opportunity to lead a development team that was integrating banks for one of our customers whose core business is based on Open Banking. We successfully integrated 14 banks from 5 different countries using their OB APIs.
One of the first things we learnt is that not every bank follows the same standard format. There are different initiatives in individual countries, such as Berlin Group in Germany, STET in France, Open Banking UK (OBUK) in the United Kingdom or Polish API in Poland. Each one of these initiatives has its own format and rules.
We also discovered that certificate management is really important, and it gets complicated when working in different regulatory zones and serving different customers.
Having seen the insights of it, I can say that it is really a change coming from traditional banking or financial services integrations. Having all these banks providing APIs with a relatively similar format eases the process, significantly reducing the time and cost of doing these integrations.
But there were also challenges when working with the banks. We experienced problems that were familiar coming from traditional integrations: incomplete or poor documentation, lack of support and various bugs. And the biggest problem we encountered was that we noticed significant differences in the implementation from one bank to another, they are not strictly following the expected format and each of them had its own approach. This meant that we had to do a lot of customization, which made it difficult to follow a fully reusable process and a precise generic implementation.
To conclude, I can say that there’s definitely a lot of potential in Open Banking. It is big already and it is getting bigger every year. There are countries and banks that have fully embraced it and show their maturity in this field, whilst others are still in the process of completely adopting it or still have things to improve to ease the implementation process. But, it’s definitely changing the way financial institutions work and creating new opportunities in the FinTech industry.
Try it yourself
If you want to give it a go, here are some links to the Open Banking APIs of different banks. You can play with their sandbox APIs and start building your own financial data aggregation tool or your own faster-and-cheaper payment service!
BNP Paribas Polska (Polish API)
Erste Group (Berlin Group)