What is Open Banking?
Open banking is the result of advances in information technology and telecommunications: it is a field in which traditional banking services and financial companies are indirectly associated with the so-called fintech or financial technology companies to support an information architecture based on the exchange of information.
These financial institutions exchange information with third-party providers: technology companies such as payment methods, electronic wallets or virtual marketplaces that have access to customers’ banking data – with their prior authorization – which they can offer to banks and financial institutions to improve the management and production of services.
The IT architecture is based on application programming interfaces (APIs). This last link makes the use and maintenance of banking and financial data accessible and enables the industry to offer better-performing services. Similarly, open banking ensures that banking data belongs to customers and users.
Technological development and the companies that are organized in this sector are part of a large-scale paradigm shift in which most activities and relationships are migrating to the digital realm. Specialists in the field associate this phenomenon with a school of thought that access to information should be open: the so-called open data.
Open access to information: Open Data
Until relatively recently, financial information on customers and users was stored centrally in banks and credit institutions. These had exclusive access to the data and, therefore, the ownership of this information remained in their hands.
In this context, open data was born as a democratization of access to data at a global level, due to its importance for society. That is, the notion that such data represent a very important capital for today’s large technology companies, and have the ability to affect the public agenda and the management of information.
One of the most significant events at international level in the financial and open banking sphere took place in the United Kingdom. Indeed, the country’s main financial authority, the Financial Conduct Authority, established that institutions had to open up access to their databases to providers on behalf of consumers.
This led to one of the most significant developments for open banking and the eventual democratization of information with open data: the European Union’s revised Payment Services Directive PS2D. This legislation regulates access to financial information and constitutes the legal basis for an eventual regulation of open data outside the financial sector.
In this way, open banking became the first step forward in terms of the undisputed ownership by users of the banking and financial data arising from their transactions and operations. According to sector referents, this represents a breakthrough in terms of open data: the possibility of making information available for a wider use, under firm and transparent regulatory bases.
How does Open Data benefit from Open Banking?
Among the main positions in this regard, it is believed that transactional data originating from users’ online operations, whether in marketplaces and virtual stores, video game platforms or any other platform where economic transactions are carried out, can serve other sectors of society and enhance their use in different types of activities.
Access to open libraries that have this kind of data originated online can improve the performance of large-scale operations and provide a better understanding of users. This is precisely why it is a key asset for companies such as Amazon, Tesla and Apple, which have stated that data is their core business.
Open banking, being mainly about financial data management, can greatly benefit the consolidation of open data -and vice versa-: the demand for user data is very high and many activities define it as essential to establish valuable relationships in an increasingly digitized society.
Open data, for its part, ensures that open banking has better processes and service quality. The financial information and historical data of users who give their consent favors the creation of better-performing financial products and more accurate market segmentation.
The financial and banking sector has been significantly transformed by the consolidation of open banking. However, this transformation process is still ongoing and is moving towards a technological ecosystem in which open access to information prevails: open data.