Open Banking: the banking of immediacy
Open banking is a secure way to give digital financial service vendors access to your banking information.
That sounds a bit loud and unsafe, but it's actually a much more agile way of doing banking and is also supported by law, both in Spain and the UK and the US and in other scenarios, albeit with different standards and legislations.
In fact, what international law does is “return” control and ownership of financial data to the user of banking services, so that we can transfer them to whoever suits us.
At a high level there are three major features:
- Account aggregation: Connect with the customer's bank accounts and extract data in real-time
- Identity management engines: Validate the authenticity of DNI-type documents and comply with AML (money-laundering prevention) checks automatically.
- Payment initiation: API solution that allows companies to make direct transfer payment movements and others with a layer of artificial intelligence for payment automation
But they are not the only new features, there are many more on the market such as APIs for banks, securities agencies, credit institutions, insurers, and eCommerce portals (yes, you heard me right, eCommerce). Some examples:
- Bulk charges: Bulk SMS shipments with a link for customers to pay service fees or debts.
- e-wallets: Electronic wallets that can be associated with a Scrow account or for virtual payments.
- SMS bank catching: Obtain customer bank details from an interface distributed by SMS where you deposit your ebanking credentials
- Motion filtering: a system for filtering accounts made with an account aggregation engine that allows you to discriminate movements in one or more accounts based on some criteria
- Scrow account: Receive and deliver funds only when a certain condition is met (for example the delivery of a good or service)
- Solvency analysis: based on the experience of payments not on the wealth analysis
Truly, the vast majority were addressed with previous technologies (transfers, direct debits, cards, SWIFT, SAPP, Editran…). However, the legal recognition of new technological alternatives and the legal obligation to share banking information open the market to new possibilities.
Of course, there are a number of technologies that have been "consumerized" and that facilitate processes:
- None of this would be the same without smartphones, but there are many apps that don’t necessarily have to be supported on mobile.
- AI (Artificial Intelligence), more specifically machine learning plays a crucial role in risk analysis and the credit supply process.
- Tokenization ensures many transactional processes
But the technological disruption cannot be attributed to a certain technology, rather to the easy union of various technologies from pre-existing parts or APIs, such as those that assemble a Lego.
Let's look at an example, the case of microcredits in P2P sales portals or in market places: Historically there were some solutions, but the costs were very high and the time to market of integration very long… also, as the buyer and seller were not correctly identified, there was risk of money laundering.
However, I can now make a combination of technologies or parts to achieve my goals:
- The escrow with electronic wallet: will serve to control the deliveries of goods at a distance and the transmission of money with tokenization of money movements.
- A buyer and seller identity management engine to prevent money laundering: the goods transaction is real.
- Aggregation of accounts to check ability to return payments on time.
- The Bank's Scoring to authorize the financing / formalization operation
- The initiation of payments to collect from the financing bank (once the operation is approved) and the bank to collect the credit installments periodically from the debtor (if it is not a current account customer)
Ultimately, I can fix P2P sales financing for my portal or market place. Funding is needed to close many online sales. Ah! and of course all this integrated into the look and feel of the portal for a uniformed customer experience….
Another issue, which I’ve already told you in part, is the cost and availability of technology. If you are a company with a specific need or use case, you will find these "pieces" in different places:
- Your bank or a fintech as an API with which your developers will make "connections".
- In your CRM, ERP, CMS, Ecommerce software as an automatic integration option.
- You will also find companies that give you the solution like PaaS (Pay as a Service) in the cloud.
- Or in API marketplaces, which are API markets.
Finally, companies want quick solutions: if this LEGO you built you can change pieces quickly, the approach (fail fast) and we will build another one. In this same example, there are several vendors for payment initiation, for identity management, even Escrow. There are also those who have all or almost all the pieces, like UNNAX.
And the individuals? Something similar. They want fast and innovative financing solutions at a click away “I want this car renting today and now, I don’t want to wait a week for you to tell me if you grant it to me or not”… ultimately we need the bank of the immediacy and we came across Open Banking
So, obviously, it depends. It is not the same if you are a bank, a securities agency, a company or an individual. In my opinion, it is positive for all parties:
- For new banks or challengers: these are the technologies that allow them to be quickly adopted and entered the market with few barriers to entry, if we do not take into account permits from the ECB or the BE. Technology makes it possible to make value propositions that were previously unfeasible, such as microcredits, come true. These banks occupy unattended niches or unattractive customer segments for classic banks. They even make interesting countries with low income and low banking.
- For classic banks or omnichannel: the possibility of breaking the monopoly of large debit and credit card operators. Advise the client globally based on all their financial information. Create functional APIs much more specialized and cheap at the request of the customer banking companies: in payments, collections, electronic invoicing, etc ..
- For securities agencies: the technology needed to become a classic-style bank and offer more services to its current clientele.
- For any credit or financing establishment: lowering barriers to operating internationally online and attracting customers from around the globe in any segment. New intermediation formulas such as Crowdlending, P2P lending or Micro-patronage with technical and legal guarantees. Much more effective and immediate risk monitoring and concession systems.
- For ecommerce, whether small or large: access to more payment options, wallet cards, escrow, electronic gift vouchers, automatic and immediate financing at the point of sale online or in person at reasonable prices for the buyer.
- For companies: access to more means of financing and collection, lower costs if there is more competition. More expansion facilities, more liquidity, more agility in the concession. Tailor-made collection and payment solutions at very low costs and time to market.
- For individuals: higher speed in the concession, security in ecommerce or P2P transactions. Cheaper access to finance. Consolidated financial information, multibank.
Author: Carles Roca