We figured out what open banking is, what advantages it provides to market players and users, and also collected comments from Ukrainian banks and fintech companies about the prospects for open banking.
Open banking is driving the development of digital banking around the world by forcing banks to change their business models. Instead of competing with fintech companies and third parties, traditional players can use open banking to partner with them. This will allow banks to remain competitive in the rapidly evolving financial technology industry.
Open banking can change the way traditional operators interact not only with fintech and each other, but also with consumers. We figured out what open banking is, what are its advantages for the market as a whole and its participants, as well as for us, ordinary consumers.
Open banking not only allows fintech companies to develop better personal finance solutions, it also forces incumbents to improve their own offerings or partner with third parties. Thus, open banking contributes to the development of competition in the banking sector.
APIs are a set of codes and protocols that define how different software components should interact - in essence, they allow different applications to communicate with each other. Through open banking, APIs are now used to pass commands to third-party providers.
APIs are also required for Banking-as-a-Service (BaaS), a key component of open banking, to function. BaaS is an end-to-end process that connects fintech companies and other companies to banking systems directly using APIs.
UK major international commercial bank HSBC launched the Connected Money app in May 2018 in response to new UK open banking regulation. Connected Money allows customers to view various bank accounts as well as loans, mortgages and credit cards in one place.
Barclays announces its success in the open banking market as the first UK bank to allow account aggregation within its mobile banking app. Bank customers can view their accounts with other banks in the Barclays mobile app.
Among the main advantages of open banking are the following:
In the UK, where Open banking is gaining traction, regulators have mandated the nine largest account operators for retail, small and medium-sized enterprises to use open APIs to allow third parties to access data agreed with customers and initiate payments on behalf of customers.
In countries with less developed open banking legislation - including the United States, Japan and Canada - open banking services are likely to continue to evolve only under the influence of consumer demand and competitive pressures.
In Ukraine, on February 19 this year, the Verkhovna Rada supported as a basis the bill No. 4364 "On payment services", which provides for the concept of open banking and the integration of the Ukrainian payment market with the European one. It also provides for the implementation of the concept of open banking, which, according to the NBU, will stimulate the development of fintech in Ukraine.
Are Ukrainian banks, fintech startups and other payment service providers in Ukraine ready for open banking? What are the benefits of open banking? We turned to market players for comments.
Alexander Kshutashvili, CEO of fintech startup NeoFin
Open banking is the driver of FinTech companies, because the need to comply with standards is not something new and not a look into the future, but today's reality. All over the world, FinTech companies become clients of banks, and bank clients become clients of FinTech companies, since such companies more and more often offer banks cool innovative products and solutions that are not available at this stage within the banking system.
This is most pronounced in the market for MFOs and banking products; the first steps towards open banking arise here. Now we are seeing a boom: banks on the basis of their platforms launch startups in the form of neobanks, invest in MFIs, and such products are successful. BankID / Diya are reaching a new level and help in bringing the reality of sharing customer data both in the environment of banks and government services.
But still, this is not really Open Banking. In the future, we will have an API agreed with banks and the regulator. Banks should not be resisted, it is necessary to adapt to new realities in time and receive income.
For us at Neofin, as a FinTech company, it is an opportunity to help market participants bring their systems in line with modern requirements and build products that will be of interest to the market. Reality Open Banking is a super application in which several products, both banking and non-banking, will coexist. And we are bringing this reality closer.
Alexey Ruban, director of business and technology development at NovaPay (Nova Poshta group of companies)
This is what the financial system will come to one way or another by making its services more accessible to everyone.
Implementation of PSD2 standards is a complex process with many contentious parties and unresolved issues. However, the regulator will propose the rules and conditions for the opening by financial and government institutions of interfaces for all players in the ecosystem.
As a result, competition will grow along with the convenience and quality of service. After all, conservative banks will have to fight for a client with fintech, which, in general, has a more flexible service model. And for fintech companies, which is NovaPay, this is an opportunity to broaden their potential in meeting the needs of their customers with modern financial services.
Andrey Kiselev, Chairman of the Board of Forward Bank
On the one hand, users of banking services today are making ever higher demands, both on the bank itself and on the quality of the services it offers, on the other, these requirements are simple and obvious - openness, clarity, general accessibility, efficiency of all types of operations. The reaction of banks to customer requirements is the creation of applications and the transfer of banking to an electronic environment. This is where open APIs dominate, where banks provide access to open data and other companies analyze it and use it to create services that improve customer service.
Open APIs and banking can dramatically change the landscape of the banking industry, bring the provision of financial services to a qualitatively new level - lead to the emergence of mobile aggregator banks, breathe new life into fintech companies and make traditional banking products easier, more convenient and cheaper. This is a trend dictated by increased competition and the changing needs of customers who expect simplicity and convenience of technological solutions from banks.
Open banking is a new strategy for the development of the banking sector for the next decade. The rules of the game for banks began to change with the entry into force of the PSD2 Directive from January 2018. Ukraine, as an associate member of the European Union, should also prepare to change these rules. However, the implementation of PSD2 standards is a complex process with many pitfalls and controversial points.
Elena Sosedka, founder of the open fintech ecosystem Concord Fintech Solutions
Open Banking will be another step towards the emergence of more fintech ecosystems that will allow you to quickly create fintech projects for new players, connect them to banking systems and launch them on the market. Thus, open banking is, in fact, a catalyst for a major renewal of the fintech industry and the emergence of new products and services. In turn, competition between these products will increase their quality, which ultimately plays into the hands of the consumer.
If 5 years ago the full-fledged implementation of Open Banking seemed a distant and vague prospect, now we see how this process has accelerated. Now it is already clear to everyone that this is the next logical stage in the development of the financial sector in the world and in Ukraine. According to the plans of the National Bank, the open API system should be fully operational already in 2023. It makes no sense for banks to resist this process.
Only win-win strategies will work most successfully in the new market formation. Therefore, now it is necessary to look for new opportunities and solutions that are beneficial for both banks and new participants who are planning to enter the market.
Open banking is driving the development of digital banking around the world by forcing banks to change their business models. Instead of competing with fintech companies and third parties, traditional players can use open banking to partner with them. This will allow banks to remain competitive in the rapidly evolving financial technology industry.
Open banking can change the way traditional operators interact not only with fintech and each other, but also with consumers. We figured out what open banking is, what are its advantages for the market as a whole and its participants, as well as for us, ordinary consumers.
What is Open Banking?
Open banking is a system through which banks open their application programming interfaces (APIs), allowing third-party companies to access financial information needed to develop new applications and services, ultimately providing account holders with greater financial opportunities.Open banking not only allows fintech companies to develop better personal finance solutions, it also forces incumbents to improve their own offerings or partner with third parties. Thus, open banking contributes to the development of competition in the banking sector.
APIs are a set of codes and protocols that define how different software components should interact - in essence, they allow different applications to communicate with each other. Through open banking, APIs are now used to pass commands to third-party providers.
APIs are also required for Banking-as-a-Service (BaaS), a key component of open banking, to function. BaaS is an end-to-end process that connects fintech companies and other companies to banking systems directly using APIs.
Examples of open banking in the world
BBVA, a major Spanish and international bank, launched its open platform in 2018. It uses APIs that enable third parties to offer financial products to customers without the need to provide a full range of banking services.UK major international commercial bank HSBC launched the Connected Money app in May 2018 in response to new UK open banking regulation. Connected Money allows customers to view various bank accounts as well as loans, mortgages and credit cards in one place.
Barclays announces its success in the open banking market as the first UK bank to allow account aggregation within its mobile banking app. Bank customers can view their accounts with other banks in the Barclays mobile app.
Benefits of Open Banking
Open banking can expand the reach of customers by banks - an opportunity that traditional banks cannot ignore. It can also create revenue-sharing ecosystems where incumbent carriers provide customers with third-party services by generating revenue from a subscription or referral base. In addition, open banking allows banks to commercialize their infrastructure by moving into the BaaS space and providing core services to fintech companies and other third parties.Among the main advantages of open banking are the following:
- Pressure on the banks.
- Additional helpful tools.
- Simplification of obtaining a loan.
- Business loans.
- Cheaper payments.
Open banking regulation
Since competition is ultimately the result of open banking, many financial institutions are reluctant to take the necessary action. Therefore, regulation of this industry has become a key factor in the spread of open banking in many countries.In the UK, where Open banking is gaining traction, regulators have mandated the nine largest account operators for retail, small and medium-sized enterprises to use open APIs to allow third parties to access data agreed with customers and initiate payments on behalf of customers.
In countries with less developed open banking legislation - including the United States, Japan and Canada - open banking services are likely to continue to evolve only under the influence of consumer demand and competitive pressures.
In Ukraine, on February 19 this year, the Verkhovna Rada supported as a basis the bill No. 4364 "On payment services", which provides for the concept of open banking and the integration of the Ukrainian payment market with the European one. It also provides for the implementation of the concept of open banking, which, according to the NBU, will stimulate the development of fintech in Ukraine.
Are Ukrainian banks, fintech startups and other payment service providers in Ukraine ready for open banking? What are the benefits of open banking? We turned to market players for comments.
Alexander Kshutashvili, CEO of fintech startup NeoFin
Open banking is the driver of FinTech companies, because the need to comply with standards is not something new and not a look into the future, but today's reality. All over the world, FinTech companies become clients of banks, and bank clients become clients of FinTech companies, since such companies more and more often offer banks cool innovative products and solutions that are not available at this stage within the banking system.
This is most pronounced in the market for MFOs and banking products; the first steps towards open banking arise here. Now we are seeing a boom: banks on the basis of their platforms launch startups in the form of neobanks, invest in MFIs, and such products are successful. BankID / Diya are reaching a new level and help in bringing the reality of sharing customer data both in the environment of banks and government services.
But still, this is not really Open Banking. In the future, we will have an API agreed with banks and the regulator. Banks should not be resisted, it is necessary to adapt to new realities in time and receive income.
For us at Neofin, as a FinTech company, it is an opportunity to help market participants bring their systems in line with modern requirements and build products that will be of interest to the market. Reality Open Banking is a super application in which several products, both banking and non-banking, will coexist. And we are bringing this reality closer.
Alexey Ruban, director of business and technology development at NovaPay (Nova Poshta group of companies)
This is what the financial system will come to one way or another by making its services more accessible to everyone.
Implementation of PSD2 standards is a complex process with many contentious parties and unresolved issues. However, the regulator will propose the rules and conditions for the opening by financial and government institutions of interfaces for all players in the ecosystem.
As a result, competition will grow along with the convenience and quality of service. After all, conservative banks will have to fight for a client with fintech, which, in general, has a more flexible service model. And for fintech companies, which is NovaPay, this is an opportunity to broaden their potential in meeting the needs of their customers with modern financial services.
Andrey Kiselev, Chairman of the Board of Forward Bank
On the one hand, users of banking services today are making ever higher demands, both on the bank itself and on the quality of the services it offers, on the other, these requirements are simple and obvious - openness, clarity, general accessibility, efficiency of all types of operations. The reaction of banks to customer requirements is the creation of applications and the transfer of banking to an electronic environment. This is where open APIs dominate, where banks provide access to open data and other companies analyze it and use it to create services that improve customer service.
Open APIs and banking can dramatically change the landscape of the banking industry, bring the provision of financial services to a qualitatively new level - lead to the emergence of mobile aggregator banks, breathe new life into fintech companies and make traditional banking products easier, more convenient and cheaper. This is a trend dictated by increased competition and the changing needs of customers who expect simplicity and convenience of technological solutions from banks.
Open banking is a new strategy for the development of the banking sector for the next decade. The rules of the game for banks began to change with the entry into force of the PSD2 Directive from January 2018. Ukraine, as an associate member of the European Union, should also prepare to change these rules. However, the implementation of PSD2 standards is a complex process with many pitfalls and controversial points.
Elena Sosedka, founder of the open fintech ecosystem Concord Fintech Solutions
Open Banking will be another step towards the emergence of more fintech ecosystems that will allow you to quickly create fintech projects for new players, connect them to banking systems and launch them on the market. Thus, open banking is, in fact, a catalyst for a major renewal of the fintech industry and the emergence of new products and services. In turn, competition between these products will increase their quality, which ultimately plays into the hands of the consumer.
If 5 years ago the full-fledged implementation of Open Banking seemed a distant and vague prospect, now we see how this process has accelerated. Now it is already clear to everyone that this is the next logical stage in the development of the financial sector in the world and in Ukraine. According to the plans of the National Bank, the open API system should be fully operational already in 2023. It makes no sense for banks to resist this process.
Only win-win strategies will work most successfully in the new market formation. Therefore, now it is necessary to look for new opportunities and solutions that are beneficial for both banks and new participants who are planning to enter the market.
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