Open Banking API Strategies for Banks & Financial Institutions
The idea of “open banking” has been receiving a lot of attention recently and we are bound to an evolution in our interactions with banking and other financial services due to it. This paradigm shift is fuelled by application programming interfaces (APIs) rendered by banks.
Management of customers’ confidential data by banks is significant because of the UK’s “open banking” initiative and the EU’s implementation of the Payment Services Directive 2 (PSD2). Using the application programming interfaces (API), we can authorise certain applications or services to access our data. Hence, Open banking with standardised APIs would reduce a lot of barriers between diverse kinds of banking services.
For instance, it improves our lives as we opt to share our personal financial data with a mobile app that displays such data in a consolidated view or to perform payment initiation directly from a checking account through an online accounting package.
Both traditional banks and new “Fintechs” stand to benefit from these developments, since they present an opportunity to transform the business model that has defined banking for decades.
Open Banking
Open banking is a drive that enables third-party financial service providers to access consumers’ banking data. The basic objective of open banking is to provide consumers with more control over their financial information by allowing them to safely use alternative financial services that tap into banking infrastructure.
Much of this new ecosystem is supported by Web API technologies. Using an API is a necessary part of Open Banking in this setting, as it offers more options to banking consumers.
Reasons for Adopting an API Approach to Open Banking
Many financial institutions are motivated to adopt Open banking in response to the implementation of the European Union’s Second Directive on Payment Services (PSD2).
There are numerous solid reasons in favour of open banking and numerous tangible financial incentives for financial institutions to make the transition. Let us look at the top reasons that follow.
Adhering to Compliance
Compliance is the main driving force for institutions to adopt open banking practises. PSD2, also known as X2SA (Access to Account), is the greatest example of a broad law that requires banks to disclose customer data with third parties.
The US Treasury has proposed new financial data sharing legislation, contradicting the country’s traditional market-driven strategy. Other major jurisdictions are also heading in this direction.
Obviously, the goal of compliance is not to increase income, but rather to maintain a viable firm. Compliance increases profitability by preventing pointless fines and fees.
Enhanced Digital Agility
Being able to share data rapidly, safely, and effectively is one of open banking’s biggest challenges. Many financial institutions are rethinking their data architectures as a result, opting for an API-first, microservices-based strategy to make information more readily available. Therefore, open banking is both necessary and beneficial in fostering more digital agility.
Open banking improves security and transparency and makes it easier for banks to use their own data internally, such as for service customisation or frontend applications.
An enhanced digital infrastructure enables data to be utilised more effectively internally to enhance the customer experience, thus improving customer lifetime value.
Superior API Packages
Open banking makes it easy to create new API offerings that generate remarkable revenue. Banks can generate more direct income if they design and market new API products. For other banking services (such as specific business accounts), these premium APIs can be utilised as up-sells or cross-sells.
Improvement in Customer Satisfaction
With open banking, customers have unparalleled choice in selecting from a wide range of banking options.
Customers are less likely to look elsewhere for their banking needs if their present financial institution offers a wider range of financial service integrations, regardless of whether such integrations are the bank’s own or not.
Customers are less inclined to switch banks if they are satisfied. As a result, the lifetime value of a customer rises, which boosts profits eventually.
Collaboration Prospects
Banks can offer enhanced features, personalised assistance, or even research and development partnerships to third-party companies in return for non-monetary benefits like cross-branding or product functionality for the bank in exchange.
Banks can attract new consumers by working with the third-party financial services industry to develop distinctive value propositions and innovative marketing approaches.
Broad Customer Base
With open banking, banks now have an immense opportunity to introduce new financial products and services based on its integration and can serve customers of other banks, potentially generating much more revenue and a progressive customer base.
Banking Made Accessible through Fintech APIs
There is a massive quantity of information that banks collect, from timestamps to transaction IDs. This data prompted the Fintech to think about how it could be utilised for better banking. “Better” means more open, transparent, and less corrupt.
FinTech services are reshaping the banking industry and the global financial system by eliminating traditional approaches such as paper checks, physical donations, paper currency, and investment businesses.
Technology is crucial to financial service industry advancement and thus APIs help banks improve speed and cost compared to outdated systems.
Banks and other financial institutions must upgrade to modern technologies to thrive in the years to come. And London prevails as an epicentre for the global fintech sector owing to a substantial number of investments in the fintech sector over there.
The meteoric growth of FinTech firms and open financial data initiatives worldwide is largely attributable to Application Programming Interfaces (API). The decision to construct the banking platform with an ecosystem of third-party developers in mind due to the following reasons:
- A bank API facilitates a faster onboarding experience for the end users.
- Banks can acquire partners that provide niche FinTech services with optimised front-end user interfaces by using APIs.
- Their APIs can be easily integrated with crowdfunding platforms, payment-splitting apps, and more.
- This is especially useful for startups with innovative financial-oriented products that may lack the resources to manage funds or set up their own bank.
- To help FinTech businesses succeed, particularly those who are developing their own APIs, banks can share this information through partnerships and APIs.
Banks require well-designed, standardised APIs and self-serving adoption processes with documentation, sandboxes, simulated account structures, and more to gain developer users quickly. A successful banking API requires more partnerships and lower startup costs for FinTech businesses.
Getting the bank programmable is a win-win situation on all fronts
- Developers can experiment with banks’ authority and expertise to produce cutting-edge services and resolve compliance difficulties.
- Customers now have access to a whole new class of services that operate in tandem with their existing accounts. Open banking could reduce political corruption.
- By capitalising on partner resources, banks may generate new revenue and boost client satisfaction.
What Experiences Can Customers Have With Open Banking?
Breaking through the technological barrier and emphasising solutions rather than technology is one of open banking’s biggest challenges. Although the heart of open banking is APIs, which enable users to safely share financial data with platforms and apps, the typical customer is more interested in knowing how this will benefit them. Simple use cases that provide perspective for end users are crucial for bridging this gap.
Consumers can better comprehend open banking’s advantages by highlighting screen scraping’s limitations while offering a user-focused approach.
Open banking’s proponents must evangelise the technology by refining the message in several ways to successfully put it on the consumer agenda:
User Control
The focus of open banking should shift away from its technological aspects and towards how consumers are at its core, managing access to their accounts according to their own conditions. Open banking becomes more enticing by emphasising consumers’ sovereignty over their financial data and account access.
Promote Amazing Use Cases
Open banking unlocks the prospects of several banking providers for consumers. Open banking advocates may excite customers by showing real-life use cases and how they can profit from accessing and using their account data.
Reduce Security Concerns
Security problems must be addressed to build trust in open banking. By adopting high-grade API security procedures and clearly communicating the robust security protections in place, users may feel secure in the safety of their financial data.
These techniques can turn open banking into a consumer-centric movement that enables people to manage their finances.
Control Matters
A common set of questions that arise when discussing open banking with customers is who can access their accounts and who is ultimately liable if anything goes wrong.
Open banking is decentralised like the Internet and APIs, which raises fundamental issues. Consumers don’t know what they consented to or who gets their financial information without centralised control.
To solve this issue and build trust in open banking, consumers need tools to observe and manage their consented activities. Open banking empowers consumers by giving them control and visibility.
Without blindly trusting other parties, consumers should understand their role in their financial environment.
Furthermore, building an open banking marketplace would organise and make available all the solutions that make use of open banking APIs. Providers could promote their products and consumers could search for and consume them in one spot. The marketplace lets regulators evaluate, monitor, and certify new products.
Open banking can boost customer trust and create a trustworthy financial services environment by introducing signage and creating an open banking marketplace.
Best-in-class API Protection for Financial Institutions
The necessity for top-notch API security for banks has become critical with the rise of open banking, in which financial institutions exchange customer information with third-party providers. To prevent cyber threats and data breaches, financial institutions must implement secure API systems.
Multi-layer Protection
Multi-layered security protections against hacking and data breaches are an integral part of any high-quality API security solution for financial institutions. API security relies heavily on authentication and authorisation.
Banks must authenticate and authorise API users before allowing access. Multi-factor authentication does this by demanding users validate their identities in more than one way. These ways can include providing additional passwords, biometrics, or tokens.
Robust Encryption Mechanisms
Banks should use robust encryption mechanisms to secure data at rest and in flight. Given this, even if an outsider intercepts the data, they will not be able to decode it or use it to their advantage.
Constant Monitoring
High-grade API security for financial institutions also involves constant monitoring and the discovery of threats. Strong monitoring systems should be in place at banks to immediately spot any unusual or fraudulent behaviour. To this end, advanced analytics and machine learning algorithms can look for obvious indications of a security attack.
To proactively resolve any vulnerabilities in their API systems, banks should not only monitor, but also undertake frequent vulnerability assessments and penetration testing.
Access control & Privilege Management
Further, financial institutions should adopt rigorous access controls and privilege management to ensure that only authorised people have access to personal data. Depending on one’s position and responsibilities inside an organisation, one may grant varying degrees of access. There will be less opportunity for theft or fraud with consumer data if banks follow the concept of least privilege.
Keep Tabs on Updates and Patches
Finally, banks should make maintaining their API systems with the latest updates and patches a top priority. This includes upgrading software on a regular basis and implementing security patches as soon as they are issued by vendors. If banks don’t keep up with upgrades, they risk having their application programming interfaces (APIs) hacked.
Regulatory Compliance Considerations
Data privacy and protection is an important aspect of regulatory compliance related to open banking API. Since APIs allow banks and third-party providers to exchange consumer information, keeping that information safe and in compliance with privacy laws is more important.
Financial institutions and their contracted service providers must take extreme precautions to guard against hacking, data breaches, and other forms of cybercrime. To further ensure consumer privacy and secure the necessary permission for data sharing, they must adhere to legislation such as the General Data Protection Regulation (GDPR).
Here are a few of the most frequent regulatory requirements that financial sector providers may encounter.
Basel II
Basel II is a set of international regulations that mandates the assessment and reduction of the operational risk losses of financial data by financial institutions. It specifically addresses issues with inadequate data security and system failures brought on by incorrect configuration or low expectations for system requirements. This makes it a useful reference for any system that has to start working with financial data.
PSD2
PSD2 is the European Union’s updated Payment Services Directive, written by the European Commission to standardise the industry across the European Union and the European Economic Area.
The regulations are meant to safeguard consumers and lay out clear parameters for how payment processors and banks should operate.
URSIT
A US government standard, the FFIEC Uniform Rating System for Information Technology (URSIT) evaluates an organization’s Auditing, Management, Development, Acquisition, Support, and Delivery procedures.
As a framework for establishing a procedure to detect security issues, URSIT is an invaluable resource.
The Gramm-Leach-Blilely Act
It is a federal law in the United States that mandates the protection of customers’ financial and personal data. The Federal Trade Commission’s Data Safeguards Rule, which mandates a comprehensive evaluation of a company’s security measures, has its origins in this law.
PCI-DSS
PCI-DSS is a regulatory standard that mandates vulnerability scanning and source code review to guarantee that payment card industry data and procedures meet the stringent security protocols required by providers and payment providers.
Many businesses operating online, especially those whose services include handling customer payments, consider PCI-DSS mandatory.
Any API that plans to accept card payments should be highly familiar with PCI-DSS because of the stringent standards it sets.
Sarbanes-Oxley
It mandates a reporting structure for internal controls to ensure that sensitive financial information is monitored and protected. It requires a thorough assessment of IT assets, software, and solutions for their resilience against data breaches and exposures and involves severe audit mechanisms for internal controls.
This is just a portion of the most prevalent and high-level regulatory standards. Regulations can be stiffer in certain parts of the world, and there can be even more noticeable differences amongst segments of an industry.
Yet, having a strong knowledge of these underlying frameworks for regulation could potentially guide in learning about open banking.
Tavas- Open Banking Product Suite
Macro Global’s Tavas is a comprehensive Open Banking solution that aims to revolutionize digital payments while ensuring compliance with the PSD2 regulations, including the UK Open Banking Specification, which allows banks to be exempt from contingency mechanisms for their dedicated API interface.
This open banking solution is highly secure and safe, utilizing a cloud-based SaaS platform to enable secure engagement with third-party providers.
With cutting-edge technology, including state-of-the-art Open Banking APIs, Tavas offers services such as Account Information, Payment Initiation, and Confirmation of Funds. And Tavas provides customizable Open APIs, allowing banks to manage their business processes effectively.
Additionally, their web-based administration portal provides valuable insights and management capabilities for TPP (third party providers) Onboarding, Transaction Status, and Consent management.
Tavas also offers a robust data flow and enhanced security features for the deployment of open APIs. With a focus on customer-centricity, it offers a range of compelling use cases that go beyond monetization, allowing banks to transform their portfolio and business model.
Remarkable & Competitive Features of Tavas
- Establishes trust with banks and TPPs (third party providers)
- Ensures compliance with Open Banking (PSD2) regulations
- Provides secure and strong customer authentication
- Customizable API Framework
- Monitors and implements changes in the regulatory environment
- Offers safe and intuitive end-user experience
- Builds trust and loyalty in payment services
- Provides a self-service developer portal with a sandbox environment for testing and integration
- Offers a suite of pre-built APIs ready for implementation
- Secured against database breaches, DDoS attacks, and man-in-the-middle attacks
As Open Banking continues to redefine the financial services landscape, Macro Global’s Tavas remains at the forefront of empowering financial institutions with its innovative API strategies to stay agile, competitive, and customer centric.
Tavas is a trusted ally for banking institutions looking to thrive in the digital age and unlock the full potential of Open Banking.
Final Thoughts
Banks may stay competitive in the face of a trend towards open banking practises with the support of an efficient API strategy. Since banks are using open banking APIs, they must provide customers with safe and reliable experiences. Customers’ personal data must be kept secure while meeting all applicable regulations.
Consumers benefit from the options provided by market-driven strategies, which also foster innovation and healthy competition. However, banks and third-party providers benefit from the transparency and efficiency provided by standardised frameworks.
Thus, financial institutions and banks who want to embrace open banking must have a well-executed API strategy. As the landscape of open banking continues to transform, it will be ever more vital for financial institutions to monitor developments across the sector and adjust their API strategy accordingly if they hope to maintain a competitive edge.
Variable Recurring Payments (VRPs) & Sweeping in Open Banking: Everything We Need to Know
VRPs (Variable Recurring Payments) are the most significant improvement in open banking to date. VRP addresses one of the industry’s most pressing issues: the requirement for consent via Strong Customer Authentication (SCA) for every transaction. VRP effectively authorised authentication to a third-party provider (TPPs), which then enabled trusted beneficiaries to pay with a single click.
VRPs will be easier and faster to set up than existing payment methods (Direct Debit, CPA), allowing consumers to manage payments more easily and integrating payments into a broader range of customer journeys.
As a result, VRPs are on track to become yet another example of the growing trend of “embedded finance,” as well as the overall transformation of open banking into open finance.
VRP has so far only been mandated for Sweeping use cases, which are transactions between two accounts with the same name. Notably, in developing VRP for the Sweeping use case, banks have built the infrastructure needed to support first-party-to-third-party transactions.
Customers will be able to use VRP for anything from subscriptions to in-app payments, as well as general e-commerce. Card-on-file will be replaced by account-on-file. Direct debits that are outdated and have a problematic operating interface may be phased out.
How do VRPs function?
Variable Recurring Payments require these three parameters to create a long-life consent token.
1. Maximum number of transactions in each period (for example, a month),
2.Maximum value of any single transaction,
3.Total aggregate value of all transactions in that period
For example, if your maximum transaction value of any single transaction is GBP300 and assume it never exceeds GBP300 per transaction. If you make such transactions 5 times, the total amount would be GBP1500 which is the maximum number of transactions and total aggregate value for the month. And if transactions stay within these parameters, SCA is not needed.
How do the customers receive help from VRP?
VRP enables faster and more secure payments. Moreover, customers will never be asked to update their credit or debit card information again. Bank accounts do not expire, while credit cards do. VRPs also provide customers with greater convenience, control, and security. While open payments are still in their early stage, there is strong adoption and growth. The benefits offered by VRP supplies will only speed up this process.
What does VRP mean for retailers?
VRP has massive benefits for merchants, including real-time settlements, lower costs, the getting rid of card fraud, lower customer churn, and no chargebacks.
VRP enables the opportunity to monetise Open Banking
VRP is the first opportunity for banks to monetize their open banking investment and contribute to the ecosystem’s balance. This has a hugely positive effect.
Open banking eases a handshake between banks (ASPSPs (Account Servicing Payment Service Provider)) and TPPs. As a result, these industry players must continue to collaborate on initiatives that expand the functionality set of open banking and the opportunities it provides.
VRP is one such collaboration model, and it stands for a significant opportunity to bring a fairer distribution of value across the ecosystem. This new collaboration between FinTech and banks will level the playing field as we collaborate to fulfil the full promise of real-time payments everywhere.
VRP works by securely connecting authorised PISPs (Payment Initiation Service Providers) to customers’ bank accounts, allowing them to make payments on their behalf. VRPs supply several advantages over Direct Debit and card CPA to both small businesses making payments and receiving payments.
VRP and Sweeping
Sweeping is the automatic transfer of funds between a customer’s accounts, such as transferring excess funds to another savings account or using them to repay a loan or overdraft account. VRPs are an innovative method of making ongoing payments.
The CMA9 will first make these VRP APIs (Application Programming Interfaces) available for “sweeping.” This is the transfer of funds from one PSU (payment service users) account to another. This can be used to automate a fixed amount to be transferred to a savings or investment account each month, or to sweep funds between current accounts to allow a customer to receive help from new account features, rates, or fees without switching current accounts.
One of the core priorities of the open banking agenda is user experience, and both regulators and industry will be monitoring the situation as the use of VRPs for sweeping are started rolling out in the coming months.
Real-world business advantages of VRPs for sweeping
The OBIE found potential benefits for both consumers and SMEs by combining VRPs and sweeping. These are some examples:
Saving money
You should be aware that, £100 billion is locked up in the UK’s business current accounts, earning little interest. However, while many businesses have a lot of cash, they do not have the time or interest to do anything with it.
A mandate can be set with a savings company to oversee a business’s current account. When the balance exceeds a certain threshold, the money could be transferred to a business savings account. Money could be swept back every time a balance falls below a certain threshold.
Overdraft protection
Sweeping has the potential to create a type of unbundled overdraft to increase competition in the business’s current account market.
International payment cost savings
According to a 2016 report, banks generate approximately £4 billion in excess profit when small businesses do not make cross-border payments. Sweeping VRPs could be used to remove the friction from using an alternative payment company or foreign exchange business.
Manage tax efficiently
As HMRC incorporates Open banking enables technology to support real-time secure payments. With VRP and sweeping, SMEs can manage their taxes well and make payments automatically without any fail once the invoice is generated or sent to SMEs.
New Subscription Economy Options
The subscription economy is expanding, with many SMEs taking part. VRPs offer a payment system that incorporates the low cost of Direct Debit with the speed and flexibility of cards, potentially creating a strong alternative in this growing market.
VRPs and the OBIE Roadmap
If you think about the next steps for VRPs, you should consider the Open Banking Implementation Entity’s (OBIE) Roadmap, which was developed in collaboration with the CMA that supplies a framework for Open Banking implementation. This Open Banking roadmap outlines several measures, including the development of technical standards for VRPs that are compliant with PSD2 (Payment Service Directive 2), the UK Payment Services Regulations 2017, and the GDPR.
Even though OBIE developed technical standards for VRPs, the CMA9 banks are not mandated to implement VRPs for all use cases. But CMA has ordered the CMA9 to implement VRPs as the mechanism for implementing sweeping. The use and implementation of the VRP standards are optional and at the discretion of the CMA9 firms for use cases unrelated to sweeping.
The CMA had originally planned to implement VRPs for sweeping by January 31, 2022. However, in response to OBIE recommendations, the CMA has allowed the CMA9 to extend the deadline. TPPs must then complete testing of the VRP standard in a live, controlled environment by July 2022, “so the firms are ready to advance general availability of the standard.”
Potential Use cases of VRP and Sweeping
Sweeping is one of the potential use cases for VRPs, which could be applied to a wide range of recurring payments and as an alternative to traditional fixed-period direct debit or card-on-file payments.
The OBIE’s Proposition Paper, published in November 2020, describes several use cases for VRPs, including:
a) Automated payments for electricity bills.
b) Linking a bank account to a social networking site app for in-app payment authentication.
c) Setting a six-month payment limit for a new subscription.
d) Automated payments for ride-hailing fees.
e) One-time payment setup for an online marketplace’s one-click payments.
f) Using a third-party smart saving app to transfer money from a bank account to a savings account on a flexible/variable basis.
g) Utilising a third-party service that supervises bank accounts and retains a threshold balance or assisting in avoiding overdraft fees by transferring funds between accounts as needed.
h) Obtaining short-term credit to avoid overdraft fees, then automating credit repayments to reduce overdraft charges and borrowing costs.
Concluding thoughts
Our analysis clearly showed that there is an appetite for VRP technology, and SMEs are eager to take advantage of this capability. VRPs help SMEs to mitigate overdue payments, and remove challenges, and pain points associated with other payment methods such as Direct Debit and CPA. The key to adoption will be in ensuring time and cost barriers are overcome to ensure SMEs get to the start line.
Macro Global’s Open Banking (PSD2) solution, Tavas enables banks to create a connected experience while also allowing them to adapt to emerging opportunities to position themselves in the new era of consumer-centric banking. Tavas – Open Banking Product Suite & Solutions instils innovation in banks by redefining account and payment aggregation via a game-changing Open Banking API Framework that addresses all compliance requirements while providing a best-in-class user experience.
Discover more about our best-in-class Open Banking solution.
Enhancing CX in Financial Services via Open Banking
Open banking enables customer financial data, including transactions and payment history, available to financial service providers and third-party payment services. While this approach focuses on improving new financial services and products and ensuring transaction security, adoption is heavily reliant on a positive customer experience.
Open Banking Implementation Entity (OBIE) established the Customer Experience Guidelines which are intended to make it easier and safer for people to use products and services that support Open Banking. It combines the regulatory requirements and customer insights to create the Standard for TPPs and ASPSPs.
Open Banking regulation has made a significant revolution in the payment services industry, not only from a compliance perspective but also bringing a better experience to the customers. It mandates that banks develop APIs for digital banking transactions that can be used by value-added revolutionary service providers to inculcate competition and innovation among financial institutions across the industry. Open Banking also aims to prevent customer lock-in by standardising account switching capabilities and simplifying payment processing.
Customers are now exposed to a new business model where they must consent for their financial information to be shared with third parties. They can only consent if they feel well-informed, safe, and in charge throughout the entire process.
Open Banking builds healthy competition in delivering a better customer experience
The opportunity to create better customer experiences has been made possible by open banking. As per recent research, well-established or traditional banks are falling short in the eyes of customers when it comes to customer experience. However, smaller, or new banks are excelled in offering a better customer experience.
Customers laud the more niche digital banks for their user-friendly online services, appealing products, and superior customer service in general. But the gap is not caused by products or attractive interest rates. Existing banks are capable of matching both.
Customer service and digital transformation are more highly linked. With the rise of newer technologies such as mobile, big data, and enhanced real-time analytics, businesses can now create new, personalised offerings for their customers and prospects. Achieving customer expectations today includes intuitive user interfaces that allow them to accomplish their desired tasks quickly and easily across multiple devices, as well as customized value-added services based on their specific needs, backed by data and advanced analytics that offer useful insights and recommendations.
They are more customer-centric and provide a more consistent, convincing experience for the end-user thanks to the resulting agility and decreased costs of change that allow them to move quickly from idea to reality.
Traditional banks may be compelled, in the face of increasing competition, to concentrate on enhanced user interface design, giving current services slick interfaces. Customer experience, though, goes beyond the surface.
Behind appealing interfaces, a truly connected enterprise beats at the core of an intriguing customer experience. A customer journey is made or broken by the seamless integration data model and the aligned business process. Customers who self-serve and a hyper-enabled customer support function are simultaneously created by giving internal staff and customers access to the information they need when they need it.
The reliance on quick and unrestricted access to data will become incredibly valuable for traditional banks that are aiming to establish and defend a competitive advantage. The commoditization and implementation of advanced analytics have already spawned a new generation of enterprises known as FinTech, which leverage open APIs and standards while focusing on customer-centric innovation for new financial products and services.
Bringing Business & Technology together
With the evolution of FinTech, the effective implementation of new generation intelligent platforms improves, and the appetite for the predictive analytical techniques of the data will grow.
To deliver a superior customer experience, banks should consider all the possible architectural aspects such as processes, services, data, and technology. Customers will appreciate simple, fast, and sophisticated core services for multiple channels and user-friendly interfaces. All these actions necessitate the meticulous orchestration of architectural changes and fundamental architectural elements. This is where enterprise architecture comes into play. By connecting these touchpoints to business process models and information technology systems, the experience is optimally orchestrated and transformed to deliver targeted outcomes for customers – and results for the bank.
Open Banking fosters the banks to redesign their products and services for improved customer experience, improved processes, and faster time to market to avoid being relegated to “lowest common denominator” account servicing roles.
Simultaneously, banks can broaden their reach through fintech challengers by providing innovative API services that drive adoption in the fintech ecosystem. Adoption in the fintech ecosystem, of course, provides incumbent banks with sources of innovation through acquisition, fostering long-term growth and profitability.
Cloud Migration
Traditional banks are finally embracing the cloud to accelerate their digital transformation goals. Cloud migration is neither practical nor cost-effective. In contrast, the institutional agility and flexibility gained by embracing cloud infrastructure and services justify the required investments. Existing banks can provide new services, increased capacity, and ongoing modernization in ways that earlier attempts focused on delivering on-premises solutions could not.
Macro Global has achieved “Gold Partner” status with Microsoft. Most of our products are now being scaled up to Cloud Platforms, and customers will soon be able to upgrade to “Cloud Only” or “On-premises with Cloud Adoption” to address BCP and cost constraints. The cloud option allows our customers to pay a single set of fees for the entire solution, including hardware, operating system, Development Framework, and product, all of which are managed by us.
It’s simple to manage and scale up with the push of a button, and it’s accessible from anywhere on any device.
Accelerate IT modernisation and digitisation efforts
Open Banking emphasises transparency, security, and access, which provides banks with an opportunity to fast-track their digitization and IT infrastructure modernization efforts. Banks can compete as technology innovators by leveraging their vast resources and massive amounts of available data, using powerful advanced and predictive analytical tools to extract valuable insights. These insights can be used to broaden the service portfolio, gain more customers, increase revenue, and improve internal efficiency. Banks should focus on continuous innovation by improving technology infrastructure, introducing new processes, and optimising current processes to enable seamless customer journeys.
Macro Global’s Open Banking (PSD2) solution, Tavas enables banks to create a connected experience while also allowing them to adapt to emerging opportunities to position themselves in the new era of consumer-centric banking. Tavas – Open Banking Product Suite & Solutions instils innovation in banks by redefining account and payment aggregation via a game-changing Open Banking API Framework that addresses all compliance requirements while providing a best-in-class user experience.
Discover more about our best-in-class Open Banking solution.
Security & Privacy in Open Banking: Risks, Challenges & Solutions
Open banking is crucial in developing and delivering new revenue-generating services that today’s customers require. Financial institutions (FIs) around the world are increasingly making Application Programming Interfaces (APIs) available to a growing number of Fintechs and other third-party technology providers, such as Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs), as part of open banking initiatives.
The primary concerns for anyone involved in the open banking environment are financial privacy and the security of consumers’ finances. According to research, 48 per cent of consumers had negative opinions about open banking due to data and cybersecurity concerns. Malicious third-party apps could gain access to a customer’s account, data breaches could occur, and fraud, hacking, and insider threats are all possibilities.
To secure their businesses, protect their customer relationships, and consumer privacy, financial institutions should indeed re-evaluate their data privacy and security practices in tandem with their open banking initiatives.
In this article, we deep dive into key security and privacy challenges around open banking and the proactive steps that every financial institution should take to intensify and strengthen its open banking initiatives.
1. Adherence to Regulations and Standards
It is essential that each participant in the FI ecosystem follows the same set of guidelines and adopts a standard that can be relied upon by all. Access to open banking APIs is only available to apps that have undergone an independent audit and proven that their processes and security controls meet the FCA’s standards.
They must do this regularly after the initial audit to maintain authorization. Simultaneously, open banking regulations, such as the European PSD2, and local and regional protection laws, such as the GDPR, establish equal rules for all and enforce a high level of security.
Adherence to compliance and regulations not only helps them provide security but also frees them up to focus on innovation can be aided by an industry-wide proactive defence strategy based on the evaluation of FIs (including banks, Fintechs, regulators, and government agencies), security controls, and compiled threat intelligence data.
2. Giving Control to the Customers
Customers should be fully conscious of how their data is being used, how they can handle it, how it is being stored, and how the business is regulated, according to open banking security. The rules have already been established. Financial services, such as FinTech apps, have recently become more proactive in informing customers about their data and encouraging them to interact with it. Promoting data accessibility and transparency builds trust and ensures users have control.
3. Know Your Customer
One of the most difficult challenges that open banking faces are detecting suspicious activities in transaction monitoring that indicate cybercrimes or money laundering. KYC (Know Your Customer) is a process that every bank must go through with every customer, both initially and regularly, to identify and verify their identity.
Banks must understand their platform consumers and the partners they are connecting with. This includes their identity, as well as more detailed information about the endpoint devices from which they’re connecting (to ensure they’re not vulnerable to hacking), geographical location, and other factors. All of this is required to safeguard sensitive data, the user journey, and comply with financial sector regulations. The first step in preventing financial crime and money laundering is rigorous customer identification.
4. Evolution of Advanced Authentication and Authorization methods
For the protection of APIs, content filtering is crucial. Financial institutions require a comprehensive vulnerability management strategy that considers people, processes, and technology. As well as frequent scanning measures to identify real-time or potential threats, risks and the ability to address them in near real-time.
Access control is the main justification for using API gateways, though. With the advent of biometrics technology and multi-factor authentication (MFA), there is a significant evolution in recent times. In addition to a strong password, which is also crucial, multifactor authentication mandates an additional step for users to log into their accounts. These may involve asking the account holder one more question, sending a text message to their phone, or using a biometric scan like a fingerprint to unlock the account. According to studies, MFAs successfully thwart 99.9% of all potential hacks.
Additionally, open banking made APIs more secure. Standards like OAuth 2.0 or OpenID Connect must be used to secure API access, and it is frequently necessary to maintain support for SAML for access control on existing solutions. Implementing Single Sign-on (SSO) and Identity and Access Management (IAM) add additional security layers.
An authentication system that combines artificial intelligence (AI) and human intelligence can also assist in addressing the issue of managing multiple passwords.
Furthermore, technological solutions such as biometrics tokens (OTP) can be beneficial. It can help banks improve security and provide a better customer experience by utilising more effective processes and workflows.
5. Strong Data Encryption Techniques
Encryption is the stepping stone in ensuring data security. Data sharing in Financial Institutions should be permission-based or risk-based, with proper audit trails based on regulations and risk management standards. FIs can improve their security while running their operations more smoothly by using identity and authorization validation, Know-Your-Customer (KYC) capabilities, and fraud detection techniques.
While API management, security, and integration are the unsung heroes of open API implementations, speed and compatibility with bank infrastructure are critical to success. Banks can simplify processes for their customers and gain more control over security by implementing risk-based and permission-based security. Furthermore, it will assist banks in streamlining their security infrastructure and making it more efficient and customer-centric.
6. IT Security Governance
Cybersecurity is more than just robust. It constantly looks for threats, weak spots, scans for vulnerabilities, and flags problems before they even arise. This process is improved by information sharing between businesses and cooperative intelligence within the banking environment.
Increasing demands in Web Application Firewalls such as user experience and service networking, are causing traditional web applications to die. APIs are typically built as RESTful web services and use data formats that differ from those used by traditional web applications. As a result, the basic interaction paradigm between client and server has changed also protecting these APIs necessitates the development of new technologies.
FIs can increase the security of their operations by taking stringent measures like implementing strong customer authentication (SCA) through multifactor authentication (MFA), implementing risk-based MFA throughout the entire infrastructure, and enabling minimal role-based access.
7. Establish a secure digital platform
While implementing open banking, it is required to have a secure digital platform as banks must transfer and consume certain data with third-party providers. A secure digital banking platform serves as a central location for connecting, storing, working with, and securing your open banking data.
All of this is made possible by microservices such as security solutions, which can be easily built on the digital platform and are already integrated into the Macro Global Digital Banking Suite, Calculus.
8. AI & ML for Behaviour analysis
Artificial Intelligence has greater potential in open banking. Based on more data, it learns and creates a more realistic assessment of the customers and their transactions. Banks can forecast customer behaviour which helps the banks to serve best to their customers. It can also help them spot odd or suspicious activity.
Banks can assess and manage the behaviour of their third-party providers (TPPs) as well as capture the patterns with the aid of AI and ML-driven solutions. Real-time verification is necessary for real-time payments. Therefore, having access to advanced analytics, AI, and ML learning tools can aid FIs in identifying fraudulent and cybercriminal activity. It is not surprising that FIs are adopting new technologies more quickly than ever as it gives them the chance to improve their ability to adapt to any future changes. For instance, natural language processing (NLP) can be used to capture and process regulations, which can then be applied to gain a sizable competitive advantage. If an incident occurs, banks can track the transactions which is critical for risk and compliance.
ML can support the detection of abnormal behaviours in fraud and system breaches. Commencing with a sample set of data, the machine is trained to spot fraudulent activity, identify the fraud, and eventually predict and stop threats.
Both FIs and consumers have a lot to gain from open banking and to profit from it, FIs must maintain consumer confidence and safeguard private information.
9. Dismantling rigid organisational structures
Another significant challenge is less technical and more organisational, namely many companies’ SILO thinking. Who is the point of contact and decision-maker when multiple technologies converge to form one large whole? Is it the CISO, because security concerns impact IT infrastructure and application operations? Is it the Business Group, because integrated solutions have a substantial advantage and a shorter time to market? Is it necessary for Marketing to take the lead because intuitive user guidance and lesser bounce rates are, after all, the domain of marketing communications?
10 .Regular Control and monitoring
Once everything is in place, it is time to monitor and control. At this point, banks will typically set up alerts for access, users, transactions, locations, amounts, and other factors. If there are any anomalies, the bank will be notified.
Final thoughts
The challenge of API security in a financial ecosystem is not simple. It necessitates a lot of work and the constant attention of the architects of a banking ecosystem. Open APIs are crucial to the growth of open banking, but they also raise more security issues.
Open API security is critical because it can prevent the leakage of previously inaccessible and even secret data points. Therefore, it’s crucial to have a secure system that can evaluate each open API in real-time and quickly and flexibly verify its security throughout its lifecycle.
Currently, only a select few organisations and experts have the necessary expertise to build a performant, future-proof security framework for open banking. Macro Global is one such organisation. MG’s Open banking and other financial software are built with the primary goal to establish secure, open, and reliable interactions between banks, customers, and businesses.
Start your journey toward open banking with API security.
MG’s views on the Joint statement from HM Treasury, CMA, FCA, & PSR on the future of Open Banking
A joint statement was released on March 25, 2022, by Payment Systems Regulator (PSR), Financial Conduct Authority (FCA), CMA, and HM Treasury, announcing their collaboration on the future vision & governance of open banking and the formation of a Joint Regulatory Oversight Committee (the Committee). Further, on December 16, 2022, the committee discussed the update on the progress, the vision and innovative ideas for how the future entity should function.
This is expected to bring major changes and reforms in Open Banking, enhancing development across various spheres. Open banking has increased the UK’s international competitiveness and leadership and has also benefitted customers, businesses, and the broader economy, promoting economic growth.
Let us elucidate on what would be the impact of these statements, and how Tavas, a new-gen, platform is fuelling the development of open banking, and leveraging the future of the FinTech Industry.
The impact of the Joint Statement
Three priorities identified are to unlock the potential of Open Banking payments to support competition and innovation, and to adopt a scalable model for future data-sharing propositions. Further, the focus is also on establishing a sustainable foundation for the ongoing development of the Open Banking ecosystem.
The Strategic Working Group (SWG), convened by the Joint Regulatory Oversight Committee (JROC) and independently chaired by Bryan Zhang, is providing a comprehensive analysis that reflects the variety of stakeholder perspectives on Open Banking’s current gaps, potential short- and long-term solutions, and the structures required to further develop Open Banking and define a future roadmap. The final report of the SWG, which will be given to the Joint Regulatory Oversight Committee by January 2023, will be a crucial factor in JROC’s deliberations.
In the interim, we anticipate the future entity to begin delivering priority non-Order activities, with cooperation from regulators, as necessary. The transitional state will terminate when a permanent regulatory framework is in place. The framework will be supported by all applicable legislation.
The blueprint of the future entity includes
The Joint Regulatory Oversight Committee has a key vision for the future:
- Empower Open Banking products and services. Drive competition in financial services that benefit both consumers and businesses
- Strong technical infrastructure and services enhancing new standards
- Ensuring cohesive collaboration with partners like Pay.UK concerning Faster Payments Scheme rules.
There are three essential components that the work addresses
- To enable Open Banking to thrive, a long-term regulatory framework needs to be established and will include the relevant regulator
with powers of review, variation, or withdrawal (subject to CMA judgement). - The CMA Order is in effect before permanent regulations are set up an interim state will exist.
- To ensure usability across all users of services and capabilities, it is important that financing for this future entity comprises broad-based equitable funding which efficiently distributes costs proportionally
- In the interim state, various principles implied on non-order activities, encompassing new activities, services or infrastructure would be discussed.
- The purpose of the entity, including playing a significant role in the development and growth of Open Banking, should be reflected in its governance arrangements.
- Any fees/liability arrangements should also take into consideration these same factors.
Interaction with further open banking operations
Joint Regulatory Oversight Committee’s work and transition planning to assess any legislation required to underpin the long-term regulatory framework for Open Banking will ensure the objectives are met.
Next actions
- CMA will announce the completion of the present road map.
- In the first quarter of 2023, the Committee will make public its suggestions
About the design of the new institution, both during the interim stage and once a long-term regulatory framework is in place, as well as its vision for Open Banking.
The Committee will continue to coordinate to ensure all activities align to achieve the vision set.
MG's View on the Joint statement
The joint statement, focussing on emerging thinking, which encompasses the design of a future Open Banking entity has been revealed lately. This joint statement has added additional focus to ensure that the operation reaches more people effectively, along with a technical roadmap envisioning a broader schema of design, implementation, effectiveness, and operations of open banking. The SWG’s extensive analysis would reflect the range of stakeholder views it has gathered during a series of “strategy sprints” in recent months. Also, a further statement is yet to be released in the first quarter of 2023. This will open the views, and recommendations with futuristic insights.
In the series of Sprint Strategy, the committee consists of a range of industry representatives, subject matter experts’ consumers, businesspeople, and other prominent stakeholders who have given their views addressing the current gaps, short-and long-term solutions, along with the structures required to further develop Open Banking and define a future roadmap. According to the latest announcement, two expert panels from the SWG’s team will be set up to lead the payments strategy sprint and the data strategy sprint. The duration of each sprint would be for three weeks, starting with a one-hour “kick-off” session and followed by a two-hour sprint discussion agenda. We expect that JROC would prioritise existing issues rather than getting narrow with topics regarding ESG amongst other considerations during this period.
The advent of this joint statement is to promote the prominence of quick, efficient, and convenient data transmission methods to the third-party banking service provider, enhancing greater competition and innovation that would benefit consumers, businesses, and the wider economy. As a result, a boom in boosting the economy of the UK and fostering international leadership in this field can be achieved swiftly. This fuels the unlocking of Open Banking payments to enhance a plethora of newer options for payments, and tailored services that would reinvent a plethora of possibilities, and bring more prospects into open banking that would help invoke newer opportunities.
In addition to unlocking Open Banking payments, HM Treasury, the FCA, PSR, and CMA are focused on “Adopting a model that is scalable for future data sharing propositions”, and “Establishing a sustainable footing for the ongoing development of the Open Banking ecosystem.”
Increased impetus toward open banking – What Financial Institutions should do?
There are almost five million active users in UK. The trajectory had gained momentum in the last five years. According to the Statista Research Department, Europe has almost 12.2 million, open banking users, and is expected to reach 63.8 million by 2024. As of 2020, 24.7 million individuals worldwide used open banking services, a number that is forecast to reach 132.2 million by 2024. It is important to note that, the growth reached a great momentum between 2020 to 2024, at an almost 50% increase.
When much of the emphasis is on the security of all the transactions, where most of the data are exposed to several vulnerabilities, it is highly mandatory to enable comprehensive protection. Various financial regulatory boards and organisations are constantly working towards bringing holistic effectiveness to increase operability, facilitate ease of transactions, offer seamless operations, and strengthen the open-banking system.
The backbone of the Open Banking system lies in the modern platforms that offer a plethora of options including robust dataflow, advanced API, and adherence to strict compliance and regulations. With advanced options to choose between cloud-based architecture or an on-premises, it opens newer choices for the clients to choose efficiency and cost-effectiveness compared to the traditional methods of banking.
How Tavas will help achieve the vision?
As a comprehensive Open Banking product suite, TAVAS focuses on creating a consumer-centric digital payment transformation, encompassing advanced features with great security. Adhering to strict compliances, and regulations to achieve interoperability and stay in control of the endlessly changing payments ecosystem. TAVAS supports a robust data flow serving the Open Banking security conformance and accelerating an array of features for secure deployment of open APIs compliant with OBIE API Specifications. Along with that, it has an integrated developer portal and Open API sandbox that helps third-party providers to build and develop Open Banking APIs. Feature-rich platform with vital Data-quality controls and integrity checks offers resilience and complete end-to-end open banking solutions
As being highly inter-operable, and efficient to handle massive accounts of transactions along with a high volume of payment requests ensuring the integrity and validity of every transaction has made TAVAS, the most reliable solution.
Encompassing all the features required to build a comprehensive platform, Tavas has become a boon for banks, to expand and enhance customer satisfaction, and bring futuristic advancement proactively. To partner with us, call us at +44 (0)204 574 2433 or mail us at salesdesk@macroglobal.co.uk. Our executives will stay connected with you to understand your requirements.
Open Banking to Open Finance – Exploring the benefits, risks & opportunities
Open Banking becomes an older topic for now as Europe has been talking about it for the past two years. Open Finance is currently a hot topic in the financial industry, but what exactly is Open Finance?
“Open Finance” refers to any Open Banking activity that extends beyond the regulatory scope of PSD2’s Access to Account provisions. As a result, data sharing and payment initiation via APIs that extend further into payment accounts, payment services, and payment service providers defined by PSD2 (Payment Service Directive 2) come under the scope of Open Finance.
Regulatory interventions set up the groundwork for Open Banking. Because of this, the Open Banking market is evolving, and new products and services are being introduced as customer adoption of these new payment methods are increasing. Open Banking facilitates the sharing access of customer financial data more securely to make life easier. The Open Banking capabilities developed by firms ranging from incumbent to challenger banks and FinTech firms have proven to be effective in delivering consumer and market utility. The distributed technology has laid the groundwork for Open Finance to expand for even greater customer benefit.
Open finance extends beyond the data and services provided by the banks to encompass customers’ entire financial footprint. A trusted third party could access financial data related to pensions, taxes, and insurance with consent from the customers. This paves the way for more tailored consumer services, including payments and other financial products.
Third-party providers can use open application programming interfaces (APIs) to build applications and services that add value to consumers, by providing exclusive data-driven insights, streamlining the user experience, or simplifying payments.
How Open Finance differs from Open Banking?
Till now, the distinctions between Open Banking and Open Finance are not clear. However, we can identify some differences based on what is happening around the world, whether through regulatory actions or market-driven initiatives:
- API Providers (ASPSPs): In Open Banking, banks and other financial institutions are considered as the API providers. In Open Finance, other account holders such as insurance companies, pension funds, and wealth managers, can provide Open Finance APIs.
- API Clients (TPPs): Open Finance APIs can address a variety of ‘clients,’ including TPPs regulated by a National Competent Authority (NCA) under PSD2 and organisations that are not regulated by an NCA.
- Security: NCA-issued authorisation numbers, PSD2 eIDAS certificates, and/or scheme lists may or may not be used for Open Finance client identification.
- Contracts: Commercial contracts between the API Provider and the API Client may be needed for Open Finance APIs.
The Regulatory Framework for Open Finance
The European Commission issued some correspondence on the EU (European Union) Retail Payments Strategy in September 2020. It established several objectives for the EU’s Digital Finance Strategy. One of them was to promote data-driven innovation, specifically improved data access and data sharing within the financial sector. The Commission also acknowledges the need for an Open Finance Framework by 2024 and plans to propose one in mid-2022.
There is a contradiction in defining Open Finance as the non-regulated, value-added space because services introduced today as Open Finance will no longer be Open Finance if they are regulated later. That could be a problem at some point of time.
Open Finance access is allowed, provided that only the data owner or a third party authorised by the owner has access to the data. Furthermore, due to the risks and sensitivity of financial data, there must be certain level of control over data access, which can be carried out through customer consent, contractual agreements, qualified certificates, or other means. Open Finance is an ethical process because it is transparent and effective for all parties involved.
Account Servicing Payment Services Providers (ASPSPs or banks) and Third-Party Providers (TPPs) or regulated entities are not the only ones who can take part in Open Finance. It applies to financial institutions (e.g., banks, financing companies, insurance companies), as well as merchants, utility companies, corporates, Small and Medium-sized Enterprises (SMEs), and individuals.
Advantages of Open Finance
Regulators and industry stakeholders acknowledge the importance of Open Finance and outline some of its expected benefits:
- Improves user experience by supplying customised products and services.
- Enables wiser financial decisions and improved financial management.
- Improves efficiency and productivity for big corporates and small and medium-sized businesses.
- Increase competition among financial service providers, fostering innovation, new service development, and increased demand.
What is the future of Open Finance?
Open Finance is the logical next step in applying the Open Banking concept to a much broader range of financial products and services, including insurance, pensions and even in other domains such as healthcare and more. The opportunity to improve savers’ overall financial well-being is enormous. However, much work is still to be done to get it off the ground, beginning with regulations, standardisation of the technology, and the development of new use cases to show the benefits it can provide.
We are excited to see what the future holds for Open Finance in general, as well as the innovations it may bring to the pensions industry to improve consumers’ insights, decision-making, and financial well-being.
From Open Banking to Open Finance and then to Open Data – New gateways
Open Finance is not the end, it is the beginning of financial industry evolution. It brings us closer to Open Data and a data-driven world in which all the industrial ecosystems are interconnected.
As a result, industries must embrace and incorporate Open Finance into their culture. Open Finance is pushing the industries into new innovative water, and those who swim in it will be better positioned to succeed in the upcoming Open Data reality.
Open Data services facilitate the customers to access and share their financial data with the approved third-party providers (TPPs), fostering the innovation of ground-breaking products and services that aid customers in better engaging with their finances, making empowered decisions, and accessing tailored products and services. Open Data is being utilised in the Account verification process, Credit checks and other PFM platforms.
- Improved financial decision-making.
- Increased access to advice and guidance.
- Better borrowing decisions.
- Enhanced user experiences.
- Increased financial awareness.
What are the potential implications of Open Finance?
This would be the debating question in the market currently. Open Finance could reduce costs and increase benefits for customers. A low barrier to entry, achieved through the low-cost reuse of existing capabilities, will secure the ability to bring solutions to market for consumers more quickly.
Open Finance has the potential to reduce fraud, improve financial well-being, expand credit availability, supply more payment options, and enable reusable digital identities. Each of these outcomes stands for a significant undertaking.
The challenge for future work is to identify the priorities where success is more likely to describe collaborative action from the industry players, government, customers, and regulatory bodies. It enables open access to data to identify the possibilities and opportunities around open finance and to set a mandate on what could be done.
By focusing on customer outcomes, we are also in the best position to directly address the issues that most trouble individuals and businesses, and which Open Finance has the potential to resolve.
Conclusion
The industry is already moving forward with several initiatives aimed at achieving the results as part of the evolution of open finance. The emphasis will be on integrating and putting into practice the various initiatives, such as enhanced fraud data sharing initiatives and access to all the available data sources. In other areas, business is showing thought leadership on how Open Finance could encourage entrepreneurial behaviour, for instance, by removing obstacles to the formation and operation of SMEs.
Open Banking: AISP, PISP & ASPSP Explained
Open Banking has been driving a spectacular impact on the financial world since January 2018, disrupting everything from payment solutions and budgeting tools to lending applications and credit analyses.
But what exactly do Open Banking providers do? Regulated providers construct and maintain the digital pipes that enable banks to securely request data and payments.
Open Banking is currently being used by individuals, lenders, and financial institutions to substitute the legacy manual and increasingly complex processes. The ability to collect and view insights derived directly from bank transaction data in real-time is extremely powerful, but it can be overwhelming for businesses that have never worked with this data before. Understanding how the technology works and what technology companies are doing with it can help you come up with new uses for it.
Open Banking relies on third-party providers (TPPs) who can provide two core Open Banking services through two separate FCA authorizations:
- Account Information Service Provider (AISP): a person who is authorised to retrieve account information from banks and financial institutions.
- Payment Initiation Service Provider (PISP): a person or entity who is authorised to initiate payments into or out of a user’s account.
Companies that want to be regulated as an AISP or PISP must go through a rigorous application process with the FCA. Some Open Banking providers can be regulated as both an AISP and a PISP, but many only have one.
AISPs and PISPs manage client consent required for Open Banking data access. This implies that each AISP and PISP explicitly state to the end-user what data will be handled, for how long, and with whom it will be shared. This digital consent journey also serves as the foundation for GDPR information processing for AISPs and PISPs.
Account Information Service Providers (AISPs) explained
An AISP is a company that has been granted permission to access an individual’s or SME’s financial institution account data. The UK’s nine largest banks are required by law to comply with the AISPs’ requests. The framework and technical specifications of Open Banking allow for the retrieval of years of transaction history in seconds.
What are AISPs capable of?Being an authorised AISP means that a company can request permission to connect to a bank account and use the information from that bank account to provide a service.
Some AISPs do not have permission to access the bank account information as they are granted “read-only” permission. They can look but not touch, which means they can’t move a customer’s money.
AISP-related services and tools include price comparison, money management tools, faster and more accurate access to financial products, and speeding up manual processes such as applying for a mortgage or a loan, among others.
Examples of AISP applications include:
- Money management tools: some AISPs collect financial data and disseminate it in a way that allows people to easily understand their financial situation, create a budget, and track spending. These new personal finance tools combine data from multiple bank accounts so that users can see their entire spending history in one place.
- Loan applications: Some AISPs, such as Credit Kudos, use this same capability to allow customers to share financial information securely and quickly with a lender or broker. Lenders also use account information-derived data and metrics to improve credit and affordability decisions. This procedure expedites traditional underwriting by eliminating the need for lenders to manually compile and verify bank statements. Better insights benefit the lenders and can provide a better customer experience to the borrower.
Payment Initiation Service Providers (PISPs) explained
PISPs are authorised to make payments on behalf of customers rather than just viewing account data. PISPs accomplish this by initiating direct transfers to or from the payer’s bank account using the bank’s tools.
What are PISPs capable of?Businesses that are authorised PISPs may request permission to connect to a bank account and initiate payments from the customer’s bank account.
There are a variety of reasons why you might want a business to initiate payments for you. For example, an app that helps you handle money in your multiple savings and current accounts to ensure you never go overdrawn and don’t have to pay potentially substantial overdraft fees. This type of capability is possible in retail, where you allow a company that you shop with frequently online to connect to your bank, so you get fast checkout and don’t have to re-enter card details for every transfer of funds.
Examples of PISP applications include:- Financial management tools: A few new money management and savings apps transfer a small proportion of someone’s balance each week to a savings account according to a predetermined process. Open Banking has also facilitated new tools that automatically transfer money between accounts on behalf of customers to avoid overdraft fees.
- Business solutions: New tools integrate with back-office systems, allowing businesses to securely manage payments and collections, make real-time bank transfers, and gain greater payment visibility.
Account Servicing Payment Service Providers (ASPSP) explained
Account Servicing Payment Service Providers provide and manage payment accounts for payment service users (PSUs). ASPSPs have typically been banks and similar financial institutions including building societies, and payment companies.
The number of banks and building societies providing open banking services is increasing. Only the UK’s nine largest banks and building societies are required to make your data available through open banking now. Smaller banks and building societies also can participate in open banking.
ASPSPs release Read/Write APIs as part of Open Banking. These allow consumers to share their account transaction data with third-party providers, who can then initiate payments on their behalf. PSD2 requires all ASPSPs in Europe to participate in open banking and provide data access.
How do open banking and screen scraping compare?
Screen scraping (also known as credential sharing) is an old technique for gaining access to a customer’s bank account to retrieve transaction data. Screen scraping works as stated below:
The customer provides their login information to a third-party provider (TPP). The TPP uses these details to log in to the customer’s bank account. The TPP then copies or “scrapes” the customer’s bank data for use outside of the customer’s banking app.
Before open banking, the only way for apps to access customers’ bank accounts was through screen scraping. Online accounting software packages made extensive use of it. Open banking, on the other hand, is a more secure method because it does not require the customer’s credentials and is thus much more secure.
eIDAS certificate
Electronic signatures can have the same legal validity as handwritten signatures under a 2016 EU regulation. However, such signatures must meet the requirements of eIDAS (electronic Identification, Authentication, and Trust Services). eIDAS certificates enable ASPSPs such as banks in European open banking to identify and authorise API connections from Third Party Providers such as PISPs and AISPs. This is critical in preventing unauthorised access to bank accounts. Since Brexit, only UK-authorized Third-Party Providers can use eIDAS certificates.
Open Banking API providers and their requirements
There is no ‘official’ API for Open Banking. Instead, banks and Technical Service Providers provide their APIs that must adhere to the Open Banking Standard specifications released by Open Banking Implementation Entity (OBIE) which is an official organisation that supervises the Open Banking implementation in the UK. The Open Data API Specification governs how banks develop access endpoints for Third Party Providers (TPPs). It defines how TPPs can use a bank’s Read/Write API. You can find the list of Open banking API specifications on the OBIE website.
Read/Write API specifications
The Read/Write API specification is the primary API specification that governs how third-party providers should connect to banks. It enables Third Party Providers (TPPs) to obtain access to bank accounts for both read and write purposes, for example, fetching account balances and transaction details to make authorised payments. Through the Dynamic Client Registration process, banks allow the Third-Party Providers to enrol automatically without the need to authenticate each one manually. API performance, uptime, and reliability are critical for open banking. Since there is no single official open banking API and each bank develops APIs on its own as per OBIE specifications, the performance of the API of each bank may differ.
Macro Global’s Tavas Open Banking Product Suite and Solutions offers a bundle of solutions to any ASPSPs to extend beyond the scope of monetisation tore-engineer the bank’s portfolio and business model.
- Identity and Access Management
- Developer Portal and Sandbox Environment
- Financial Grade Open Banking APIs
- Strong Customer Authentication
- Administration Portal
- Modified Customer Interface- Fallback Arrangement
- App2App Authentication
- Regulatory Reporting
To learn more about how Macro Global can assist you in monitoring, managing, and mitigating the aforementioned challenges, please visit Tavas – Open Banking Product Suite and Solutions.
Open Banking: Pushing the banks into new innovative water post COVID-19
The importance of digitalization for banks and financial institutions cannot be overstated. Even before COVID-19, when customer contacts could take place in branch offices and in-person settings, the sector was wrestling with the necessity to fulfill the digital expectations of a changing market. The events of 2020, as well as our reliance on digital interactions and banking self-service, have only served to highlight the need and necessity for banks to become more digital.
Consumers aren’t the only ones who stand to benefit. The shift towards Open Banking has resulted in the emergence of hundreds of new fintech platforms and solutions that are pushing the boundaries of innovation and economic development in their countries. Together, they are forming a new ecosystem for small, medium, and big enterprises that can gain directly from connecting to financial institutions via APIs, or harness the ecosystem between banks, fintech, and consumers to adapt their commercial services to their clients.
As banks map their path to digitization, open banking is developing as a competency that institutions will need to tackle to remain competitive and keep up with an increasingly digital economy.
As a result, there has been a surge in consumer-facing finance innovation using the mandatory API standard. The use of third-party fintech apps for personal money management exploded during COVID-19 in the UK, where open banking has taken off the fastest, with 20% of all UK people utilising FinTech platforms.
According to the same poll, the use of Fintech platforms among young individuals increased to 50% during the pandemic. In the United States, Visa and Mastercard are working quickly to integrate FinTechs onto their platforms to enable open banking and build a network-agnostic payment technology system.
More broadly, open banking will make it easier for retail and business clients to choose from a broader range of goods and services, as well as consolidate ties to adjacent accounts and programmes. This connectivity has the potential to significantly benefit bank clients by allowing them to more easily share information with financial advisors, accelerate loans, decrease costs, and secure data transfer.
Banks who do not embrace open banking, in our opinion, will not only limit their ability to connect with clients in meaningful ways but will also limit their opportunity to remain at the forefront of innovation. Instead of being caught off guard by UK legislation or losing a competitive position in an emerging market, banks should begin planning their strategy and investing in the infrastructure required to fully exploit open banking.
To discover more on how Macro Global can help you to monitor, manage and mitigate the above challenges, please reach us out on salesdesk@macroglobal.co.uk (or) +44 0204 574 2433.
Leveraging the Open Banking as a Strategic Plan for Banks
“Adapting open banking Not only from a compliance perspective, leveraging the OB as a strategic plan for banks for their growth.”
Open banking has significantly grown over the years in the financial services sector due to the dynamics of financial technology. With the integration of customer banking information and application programming interfaces, a bionetwork is created that is conducive to generating effective business processes for the growth of these entities, which includes efficiency in transactional processing systems.
The Transactional processing system is not limited to monetary transactions, but on a broader spectrum, it entails a system of collection, storage, modification, and retrieval of data transactions of a given entity. This in entirety signifies a strategic roadmap for growth in the banking sector as it leverages the data for further complex financial modeling for banking growth in a number of ways. This notwithstanding, open banking ensures sound compliance with regard to technological regulations within this dynamic space.
To drive this point home, I bring into perspective TAVAS, a Payment Service Directive 2 (PSD2) solution, which is an open banking product suite that has made a significant impact on the strategic planning for banking growth in a myriad of ways.
To begin with, TAVAS has integrated customizable application programming interfaces that have been effective in fostering customer service experience and engagement. A good online customer experience may improve the entire customer journey and is a critical differentiator for practically any organization. This can only be done by third-party companies who assist merchants in realizing their full potential.
Centralization of services is another key contribution of TAVAS to open banking. This has come about in a number of facets, the key being seamless onboarding that is so streamlined for online service sign ups, coupled with cutting-edge technology that facilitates efficient account information services, payment initiation services, and confirmation of fund services. These pretty much enhance robust customer centricity.
TAVAS has firmly taken into account the aspect of regulation technology on open banking, as RegTech is what seems to seal financial technology. This has been done by taking into account the security of the online platforms as a means of curbing potential threats from such aspects as cybercrimes and other unauthorized access to these effective platforms. These products and suits are highly secure and safe with full compliance with regulatory technical standards. Secure access to these application programming interfaces gives customers confidence in operating these systems.
RegTech and fintech are ideal ways to leverage open banking for strategic growth in this technologically dynamic era.
To discover more on how Macro Global can help you to monitor, manage and mitigate the above challenges, please reach us out on salesdesk@macroglobal.co.uk (or) +44 0204 574 2433.
Explained: What is Open Banking and PSD2?
What is Open Banking?
Open Banking, a concept of democratising the customer data fastened with the banks, stimulates an increased competition within the financial services market by bringing more innovation to the quality of the products and services delivered to the customers. Open Banking requires the banks to expose their data in a secure, standardised format, allowing information to be exchanged more freely online between authorised organisations.
This data comprises some simple facts, such as branch locations and specific details about banking products. It enables the customers to easily discover banks that provide disabled access, or to compare the features of various personal and corporate accounts to get the best price. The more significant release concerns the data contained in transactions. Banks have a definitive record of everything we spend, lend, and borrow. Open Banking allows this valuable information to be shared with third companies, who can then utilise it to develop new products.
How does Open Banking work?
Open banking can help businesses accept online payments from customers, speed up new customer onboarding, and provide value-added services to customers. Open Banking enables users to grant secure access to their bank account so that their financial information such as earnings and expenses can be used to provide them with value added services such as budgeting advice or recommendations for other financial products, they may be eligible for. It can help the customers to manage their money in a variety of ways and make secure payments more easily than traditional online banking. Also, it brings new business opportunities to the banks and create a healthy competition in the marketplace in delivering the better customer experience. Open banking can help businesses cut costs, reduce risk, and improve the customer experience. Currently more than 3 million people started using open banking apps and we expect an exponential growth in the usage of open banking by 2023.
Adapting open banking Not only from a compliance perspective, leveraging the OB as a strategic plan for banks for their growth
The Open banking wave provides a new revenue opportunity by creating improved experiences, frictionless banking journeys and customised services that help them to stay ahead of the competition by opening up the shutters for collaboration with innovative fintech firms.
Banks unlock the promise of open banking by revisiting their existing customer authentication and consent management mechanism enabling the safe and secure exchange of data and services for customers. Banks adopting open banking can monetise their infrastructure by exposing different APIs to a wider range of fintech and other financial institutions that will be mutually benefitted from connecting these APIs for building their service offerings.
What is PSD2 in Open Banking?
Open banking differs by country, but in general, it entails banks or financial institutions revealing their financial data to third-party providers via open Application Programming Interfaces (APIs). The scope and format of that data vary and are frequently determined by a country’s specific regulations and implementation standards. In the United Kingdom, open banking began in 2018 with regulations allowing nine of the country’s major banks to implement standards for enabling secure access to customer data. This was accompanied by EU Regulations (PSD2) requiring all banking institutions and payment service providers (PSPs) to grant authorised service providers access to their customers’ financial data with their customers’ consent.
Through Open Data APIs, banks grant access to their financial data available in the UK in a secure, standardised manner. This makes it easier for businesses to use data to create consumer-friendly services. Third Party Providers (TPPs) are companies that use open banking data and should be controlled by the Financial Conduct Authority in the United Kingdom (FCA).
PSD2 (Payment Services Directive Two) is European Union legislation that came into force in January 2016, with a deadline of January 2018 for its incorporation into national legislation. PSD2 is governed by the Financial Conduct Authority (FCA) in the United Kingdom.
PSD2 is designed to make open banking possible and secure by:
- Using multi-factor authentication, we can enforce greater security standards for online transactions (MFA).
- Making it mandatory for banks and other financial institutions to allow account holders to offer third-party applications access to their account and payment data.
PSD2 is a statutory necessity for all payment service providers (PSP) in Europe. It requires banks and all payment providers to open up their data to third-party providers if an account holder consents. It also mandates banks to utilise strong customer authentication (SCA) to improve payment security and reduce fraud.
Open Banking is also a component of the second Payment Services Directive (PSD2). Sometimes these two are confused: Open Banking is essentially the UK version of PSD2. The distinction is that, whereas PSD2 mandates banks to make their data available to third parties, Open Banking requires them to do so in a standard way.
Integrate with TPPs to deliver customer-centric services in the competitive world
Open Banking provides the customers with more ways of managing their money, lending, and making payments. It has also created a plethora of chances for financial innovation.
Open Banking has obliged banks to give customers more control over their financial data by letting them connect their data to other regulated providers, such as a third-party financial management application that can display their transaction data and balances in one location.
Accessing customer bank accounts through a single integrated platform along with open APIs play a vital role within the banking ecosystem interfacing between the banks, third-party providers (TPPs) and payment service users (PSUs). Customers with their consent can leverage the benefits of open banking by securely exposing their data to any of the trusted third-party providers to avail of bespoke financial products and services.
By adopting Open Banking, the TPPs (e.g., Account and Payment Aggregators) offer predominant customer-centric services with enhanced agility accelerated upon obtaining the user’s consent to access their bank accounts.
Benefits of Open Banking for consumers
Open Banking simplifies the consumer’s life by consolidating all their financial information into a single app, allowing them to manage their finances more easily. This may assist consumers in budgeting more effectively and saving money. For example, such apps may help them see their overall financial picture and identify areas where they are overpaying for a utility bill, credit card, or overdraft.
Open Banking enables secure faster payments in the most convenient way. Open banking payments are faster than traditional online payments, especially on mobile. It doesn’t require any credit card details and no need to log in to bank account. Consumers can simply choose the bank from the list shown on the screen and make the payment securely after fingerprint or face ID verification. This can be done in few seconds and the receiver gets the money immediately. It’s as simple as using a contactless credit card in person, and it’s protected by bank-grade security.
Through Third Party Providers apps, consumers can generate their financial statements for rental agreements, mortgages, loans, and investments. Regulated companies can use open banking with consumer’s consent to get an overview of their income and expenses, for example, to make a quick decision on loan or rental application. Also, it is not required to upload or print any bank statements as the consumers can directly give access to certain services to the financial institutions through the apps more quickly you can sign up for certain services and apps more quickly.
Benefits of Open Banking for Businesses
Open Banking facilitates online accounting by providing safe and secure access to the financial records. It can even assist in classifying business expenses for tax and accounting purposes.
It can make it easier to obtain capital. Potential lenders can use open banking with the consent to gain an overview of the business finances to make a quick decision on loan application.
Open Banking enables online payments at low transaction fees and reduce fraudulent transactions and increase the conversions. Any business that transacts online can use open banking can accept instant bank payments without the use of card networks.
It can assist you in accelerating customer onboarding. If you need to collect financial information from your customers at signup, such as proof of income or bank account ownership for a payment, open banking can assist you in doing so in a secure, automated manner.
Macro Global offers 40+ compelling use cases for businesses around open banking. Pls reach out to us to explore more.
Open Banking APIs Endpoints
Open Banking relies extensively on the use of Application Programming Interfaces (API) to securely share customer data among banks, as well as allow third-party providers (TPPs, e.g, Account and Payment Aggregators) to access the bank’s technology environment to build innovative applications and services.
Banks expose the Account Information Services (AIS) and Payment Information Services (PIS) through various API endpoints.
Account Information Services (AIS) through which the bank account-related information of the user such as account holder name, account type, account balance, account statement, etc. are displayed within the TPP application.
Payment Initiation Services (PIS) through which the users can initiate a payment to the different beneficiaries from their multiple bank accounts through the TPP’s application without accessing their dedicated online banking applications.
Some of the AIS & PIS data endpoints are set to be mandatory in the Open Banking Framework (example: accounts, balances, transactions) which means these data should be exposed by banks through specific API endpoints.
There are some data endpoints (example: supplementary account info, offers, events subscription) which are optional hence banks can decide whether to expose or hide these data. Optional APIs can be integrated subject to the bank’s requirements.
Conditional APIs are the data endpoints that should be exposed if the banks have certain services available in their net banking environment. (example: beneficiary data, future payments, standing orders). These data endpoints are exposed only if the bank offers these services.
Note these mandatory, conditional & optional APIs for all the TPPs vary for each country subject to their local Open Banking Framework and regulations.
Adoption of Open Banking in the UK and Europe
The efficacy of Open Banking has always been dependent on the large financial services providers, who ultimately control the data. It was dependent on them allowing third-party providers to use their Open APIs, as well as assisting in the promotion of the new options and benefits to consumers. Is this what happened?
It appears so, despite lethargic beginnings marked by a lack of customer awareness and traditional institutions that were hesitant to get the system up and running. And, with the collapse of conventional banks and the advent of challenger banks that have organically connected with fintech, Open Banking has been a stimulus for the expansion of fintech in Europe.
Open Banking in the global perspective
Open banking has already emerged in various countries having different regulations but open banking as a concept goes well beyond the regulatory environment and is applicable globally to uplift the existing landscape of the financial industry.
Countries like UAE, Saudi Arabia and Qatar are driven by the market where the third-party providers and banks are allowed to develop their API platforms as they are conscious of the strategic importance of Open Banking to attract new customers and to gain a competitive advantage.
Countries like the UK, Bahrain, Egypt and Kuwait are driven by the regional regulations where the APIs are developed as per the government specifications and sharing of data between entities is controlled & monitored by the government. These regulator-driven countries should perceive open banking as a chance to promote innovation in their financial services rather than a compliance burden as it embraces a more inclusive financial culture and brings all categories of individuals and businesses into an ecosystem where they can further integrate and flourish as a broader economy.
Is Open Banking safe?
Security is the most important concern in Open Banking for all the parties involved. Would it render banking data exposed to attack? Can consumers put their trust in new fintech providers?
So far, no PSD2-related cyber incidents have occurred, however, the Financial Conduct Authority is probing opaque marketing and data used by some digital companies, particularly considering GDPR, which went into effect this year.
Open banking has lowered the risk to customer data by reducing the popularity of scraping, the original method used by many fintech businesses to acquire users’ account information. In addition, AISPs and PISPs must be registered, licenced, insured, and controlled under PSD2.
The ultimate responsibility is on third-party providers (TPPs) to protect their infrastructure from cyber-attacks, while banks are concerned with limiting fraud risk because they are the first party accountable for unauthorised financial transactions from a customer’s bank account. Therefore, banks should invest in a diverse set of analytical technologies to validate authorized customers and spot threats.
Insurance security also has been improved, as PSD2 regulations mandate PISPs and AISPs to have a specified type and degree of technology-based professional indemnity and cyber insurance. One of the reasons this is critical for fintech is that if a third-party provider is breached, it is required to repair the situation and restore any money to the customer via their bank within 72 hours. This can be covered by PSD2 insurance.
To discover more on how Macro Global can help you to monitor, manage and mitigate the above challenges, please visit Tavas – Open Banking Product Suite and Solutions.