Open Banking is nothing new in the UK and Europe – in fact it’s been around for quite some time now. What is new, though, is the vigour with which regulators in the region are beginning to monitor compliance with the Revised Payment Services Directive, or PSD2.
That means the many banks, financial institutions (FIs) and e-money institutions (EMIs) that have not put in place an API solution or have looked for compliance shortcuts will now have to up their game, and quickly.
The Financial Conduct Authority (FCA)1 and the European Banking Authority (EBA)2 have both recently made clear they expect smaller financial institutions to comply with PSD2 and to do so without introducing unnecessary barriers to third parties.
The reasons for current non-compliance among smaller FIs and EMIs essentially boil down to a lack of resources.
In a survey we ran last year in partnership with the Prepaid International Forum (PIF) and Open Banking Excellence, some of the smaller FIs said they see Open Banking as a compliance headache and worry that there won’t be many third parties wanting to connect.
Yet even with these challenges, they all said Open Banking is either “a great platform to grow our business” or a “good opportunity in the long term”.
Our expectation is that what may seem like a heightened level of scrutiny/urgency from regulators may in fact provide the impetus for smaller FIs to truly seize the vast opportunities afforded by Open Banking rather than thinking of it as a burden.
Tackling the burden
APIs are increasingly seen in the industry as strategic channels to market for banks; a route to serve more customers in more flexible ways and through the platforms that they want to use. Good APIs are also a key channel for banks to develop partnerships more quickly and at a lower cost, and they will be a channel that banks can start to monetise, as they deliver premium functionality through APIs that third parties will pay to use.
Some FIs are harnessing the power of Open Banking using it to their advantage. For example, Tide, the well known SME challenger bank, are consistently placed in the top spots on the open banking API performance dashboards in the UK. Great APIs mean their customers are getting better service and partners are more likely to want to work with them.
But, they are, perhaps, the exception not the rule.
Patchwork/Bye-bye screen scraping
A number of smaller FIs have implemented something called a “modified customer interface”, which is a version of screen scraping that is not great for either customer or third party. It’s little more than a compliance loophole and misses the point of true API solutions.
In its recent consultation focused on PSD2 compliance, the UK’s FCA effectively called for an end to modified customer interfaces by requiring banks to implement APIs. And in Europe EBA has started to make noises about ensuring National Competent Authorities across the continent focus on reducing barriers to third parties, a move that suggests the days of screen scraping are coming to an end.
(For more on this topic, please check out the latest instalment of the Ozone Layer, where Sam Seaton, CEO of Moneyhub shared her views on the importance of good APIs for banks.)
Eyes on the prize
For those who are yet to implement open banking APIs or who need to upgrade their tactical solutions in order to comply with PSD2, our advice is keep your eyes on the prize. This should be a great opportunity to grow your customer base, serve existing customers better, develop more innovative partnerships and ultimately steal a march on the big guys.
To truly seize the moment, we recommend you take these three steps:
1. Deliver in line with API standards. A number of standards have emerged around the world and third parties increasingly expect APIs to be delivered in line with them. Doing so will also provide a more attractive proposition for developers, ensuring the APIs are a successful channel for building partnerships and distribution.
In the UK, for example, almost all banks have chosen to use the UK open banking standard, even though only the CMA9 banks were mandated to. Whereas across mainland Europe the Berlin Group standard is the most well used. Globally a number of other standards and variants are emerging.
And the standards continue to evolve as market demands become more sophisticated.
Delivering old versions of the standards may result in missed opportunities. As an example, the latest version of the UK standard includes Variable Recurring Payments (VRPs), which could be a game changer for Open Banking and unlock a lot of commercial opportunities for banks.
2. Deliver a great developer experience. The API channel creates a new set of expectations: developers expect to find documentation, including How To guides, easy onboarding and the right tools to build and test their propositions. A lot of banks have done this badly, delivering disjointed developer zones, complex onboarding and sandboxes that are neither useful nor representative of the production APIs.
(In one of our Ozone Layer TV specials, Joao Martins from Yapily said: “The easiness of connecting to a bank is facilitated if they have a standard (API) that we can just plug into”.)
Getting this right sets you up to build productive and effective partnerships with third parties who may help get your products out to more customers or allow existing customers to get more value from the products they hold with you.
3. All this needs to be done in a way that doesn’t break the bank, but makes the bank. If this is to be a strategic channel it needs to have a positive impact on the business. That means it should not be a heavy cost burden or a major engineering distraction and it should pave the way for value creation, through functionality that goes way beyond mere compliance.
At Ozone API we know just how hard it is to do this well.
Our founding team led the development of the UK Open Banking standard and we started by building the official reference implementation and sandbox for OBIE and from there we built a solution to help banks and smaller FIs.
Just this month, we launched the Ozone Open Finance Hub, a specialist solution to help banks handle the complexity of open banking and deliver high-performing, standards-based open APIs.
The Ozone API Hub is designed to help you:
- Align to and get support on all major standards: fully conformant to the widest range of major global standards – UK Open Banking, Berlin Group, FDX, FAPI, CIBA, as well as Brazilian and Bahraini open banking standards
- Deal with third party management: tools to automate onboarding, verification of TPPs and their management through the lifecycle
- Handle fine-grained consent management: fully integrated, fine-grained consent management, allowing for the delivery of regulated and commercial use cases
- Deliver a great developer experience: rich API documentation, a fully transactional sandbox and sample code.
We know this space better than anyone and have spent the past four years building a platform that can make it faster, simpler, more cost effective and better performing than any other option. The Ozone Open Finance Hub makes it easy to comply, but beyond that it serves as a strategic foundation for delivering a value-generating open API platform.