From concept to practice and progress in the last ten years, it has made the UK be the pioneer of innovative FinTech and open banking.
We are working hard to research and participate in the process. We believe that we will embrace this opportunity.
What is Open Bank?
Open Banking is a new banking model that opens the way of “customer oriented” to new products and services. It shifts from close to open banking models and it is transforming the traditional banking platforms from centralised to decentralised. It is a platform cooperation model that uses technologies such as open APIs to comply data sharing between banks and third-party institutions, thereby enhancing customer experience. This model originated in the UK and developed under the supervision of regulation.
In the traditional banking models, banking services are vertically connect to the customers. Banks and financial institutions develop products and services to meet the needs of most users, but it is natural to sacrifice the individual needs of users. The choice of banking services and products for customers is very narrow, and the starting point of centralised platform operation is to bind customers to create data islands and a closed ecology. Financial products are therefore monopolised and opaque, and the cost is high.
Open banking is a banking practice that provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs). Open banking will allow the networking of accounts and data across institutions for use by consumers, financial institutions, and third-party service providers. Open banking is becoming a major source of innovation that is poised to reshape the banking industry. The entrance of the banking services will be any sector of your life. Customers will be benefited by lower price and wide choices of service, in the result, it will form a personalised banking services and experience to them.
How can the innovation of open banking benefit individuals and enterprises?
Application programming interfaces (APIs) connection
Access to financial services and services of various industries through interfaces. Customers enter bank services from other entrances. I believe that in the near future, customers will become their own central point, and banks will actively enter into providing services when the technology and usage habits are mature.
Using the latest financial technology, for example, AI can provide users with accurate service quality; blockchain can establish a new credit system and ledger to create a more efficient and cheap way of circulation and settlement.
Enterprises can issue cryptocurrencies to sell products or services, which has greater liquidity and lower costs, and customers can also more easily obtain cheaper and personalized products and services
Brief introduction of the regulations
Open banking in the UK is a government-led change progress. Financial Conduct Authority (FCA) regulate the products and services offered by open banking. Technology related such as APIs is set up by Competition and Markets Authority (CMA) on behalf of the UK government.
At first, British regulators noticed that people were paying high fees due to overdrafts, and account balances did not get a reasonable interest return. In addition, people did not switch banking services frequently. This situation has not been improved for many years, so the UK Competition and Markets Authority (CMA) proposed the concept of open banking, which aims to enhance inter-bank competition and improve customer experience.
After the United Kingdom proposed the concept of open banking, the European Union also started the “New Payment Directive” (PSD2) legislation. PSD2 aims to accelerate the integration of the EU payment system, create a level playing field for all payment service providers, make payments safer, protect consumers and reduce payment service prices. The UK and the EU have basically the same legislative directions, but the UK goes a step further and requires banks to share data in a standardised mode; in addition, as early as 2016, the CMA formally required 9 banks to open their data in the form of open APIs before the end of March 2017.