Written by Chris Michael and Huw Davies
We are now over 5 years on from the launch of open banking in the UK. The UK arguably created a blueprint for its delivery, based upon clear regulation and supported by defined technical standards.
In that time period, we’ve seen open banking and open finance become a global phenomenon, with initiatives happening across every continent, with the exception of Antarctica.
As new markets have started this journey, we’ve seen an ever increasing proliferation of standards. Whilst these markets are typically building on existing standards, for example both Brazil and Saudi Arabia are built on the foundations created in the UK, they are often evolving them in different directions to meet their specific needs and objectives.
There is an argument that this fragmentation could be a good thing, since markets often have different priorities, and this will enable more and more use cases and accelerate standards development globally. At the same time, there’s a very real risk that this will only lead to greater complexity, greater cost and reduced interoperability across a global financial system.
So is there a best in class? And if so, which is the real ‘gold standard’? This short article will explore these questions.
But what do we mean by standards?
Before getting into that, it may be worth explaining what is meant by an ‘open finance standard’. Essentially it comprises specifications and guidelines which define how open finance APIs should be built in order to comply with relevant (local and global) regulations, ensuring a high degree of implementation consistency and quality across the market, thereby enabling third party providers to build innovative new services which deliver real, tangible value for end customers.
Typically such a standard includes:
- A security profile – to ensure high levels of security and trust are established
- API specifications – to ensure they provide the right services and functionality in the right way
- Customer experience guidelines – to ensure it works well for end users, establishing trust and understanding, while avoiding unnecessary friction
- Operational guidelines – to ensure the right levels of availability and performance are delivered
Now that is (hopefully) clear, which standard is setting the benchmark?
Spoiler alert… there is not one. There are however many pockets of excellence and best practice which provide clear direction for the ongoing development of new and existing standards.
Pockets of excellence
The OpenID Foundation’s FAPI (Financial Grade API) Profile has become the benchmark for security in this regard. Most open banking and open finance standards are leveraging FAPI as the core security protocol. In fact, the rise of open banking has helped to accelerate the development of this profile with the latest FAPI 2.0 security profile being recently published.
The UK has raised the bar when it comes to rich payment functionality. With support for single payments, variable recurring payments, bulk payments and international payments, the UK standard includes the foundations to support pretty much any payment use case. The market is not yet leveraging the depth of capability at scale, but the standards could enable far more use cases than we’re currently seeing.
Brazil has set an impressive benchmark with its ongoing implementation of a broad open finance scope and usage has been growing at an impressive pace. Where, I believe, Brazil stands out is in its approach to mandating conformance certification across all banks. This is creating a strong and consistent foundation and significantly reducing the time and complexity to deliver propositions that will help customers.
The FDX standard has gained impressive traction in North America, with a reported 53m accounts accessible through banks that have implemented APIs in line with the FDX specifications. But where FDX stands out is in the breadth of products and data covered, for example richer tax data.
In mainland Europe, the Berlin Group has been making purposeful strides to deliver value by publishing its openFinance API Framework to help banks expose ‘premium’ services which can enable more innovation, such as coverage of additional account types (e.g. savings, loans, securities) and Buy Now Pay Later (BNPL).
Australia is certainly out in front when it comes to extending the open data movement across other sectors. The Consumer Data Right opens customer permissioned access to data across multiple industry sectors with utilities following on from banking and financial services.
Perhaps the most significant new market to implement open banking is the Kingdom of Saudi Arabia. Firstly, they have based the entire framework on use cases, which ensures that the business rules and standards work together to enable these use cases. Secondly, they have implemented a robust certification framework, to ensure high quality implementation from both banks and third parties. And lastly, they have introduced the concept of ‘service requests’ – initially focused on the ‘letter of guarantee’ use case – as a first step towards embedded finance. This is critical to give banks a strong commercial incentive to embrace open banking and open finance and a new way to distribute products and grow customers and revenue.
Finally, in Singapore, we have seen a voluntary approach and the development of a playbook for open finance by the Monetary Authority of Singapore. Whilst the playbook is less of a specific set of mandated API standards it does lay the foundation for a very, very broad range of use cases.
Navigating the complexity
There are of course others, with over 20 published open banking/finance standards, there are many pockets of excellence. And with more markets on this path, we should expect further complexity and fragmentation before we see consolidation into a smaller number of interoperable standards.
From all of this, two conclusions can be drawn. Firstly, this space is getting ever more complex, so drawing on expertise is a must for any bank or regulator. Secondly, the range of standards cover a diverse and exciting set of functionality, so knowing exactly how to piece together the best capabilities from each will really accelerate innovation further.
Learn more about the global financial landscape by exploring The Global Open Data Tracker.