Open Banking. WTF?
“Open Banking”. You’ve probably seen it mentioned somewhere, especially at the moment. Once more, it seems there’s a new buzzword for people to bandy around.
Like “big data”, “open banking” seems to have as many interpretations as there are talks and blog posts. Does it need to mean different things to different people? This, like so many things around describing, is part of the challenges I was involved in a few years ago when we launched the Data Standards challenge, and led to some of our work on a common convention, or more buzzwordy, the taxonomies.
Even if we take the concept of “bank account” it can mean different things to different people; for the customer, somewhere they get their salary/wages paid into; for others, where they hold their clients’ monies; for some, a series of varying-lengths of numbers. That’s even before we think about how things are outside of the UK. Or even without lumping “building society account” together with “bank account”.
What’s driving the talk about open banking? WHat’s driving the actual adoption (shocker, there are some people actually doing things about it, not just talking about it with no plans to do anything). The Second Payments Service Directive (“PSD2”) is perhaps shaping some thinking especially the parts that relate to consumers switching accounts, having two factor authentication, API-led access to banking, or understanding what they’re being provided to (and at what fee) -- incidentally something that I advised on, almost ten years ago when Cabinet Office wanted to do something about a better deal for consumers (but no one would agree on sharing the information voluntarily, or that competition is good for consumers).
Of course, nothing touches the legacy systems that have horrific things plumbed on top of them (rather than actually doing something useful, like replacing legacy systems); it seems to be the role of third parties to provide APIs that interact with the backoffices of banks in most cases. The leading players, like Starling and Solaris with whom Railsbank have partnerships, have understood the challenge. And are set to be a real challenge to the established, perhaps taking things for granted banks. Services like Yodlee have been built as a stopgap, but I’d say they should just stop.
The old banks should actually pull their socks up. They’re harming themselves, and limited the choices of consumers (although, it’ll be a nice retirement job fixing their COBOL and FORTRAN based systems and fees only banks can afford).
Of course, we shouldn’t leave it to industry to work out technology solutions. The few times they have tried, they completely fail to consider their own advice over the years; don’t enter your details elsewhere. Don’t share your PIN, then go ahead and implement Phised by Visa (also know as “3DS” or “Verified by Visa”). Like with how things were across the public sector, there is limited standardization in taxonomies from where the banks won’t work together. Collaboration is key. THis is perhaps one of the best advantages of Open Standards that are collaboratively developed.
There’s also Open Banking market-place platforms, such as ourselves and Starling, which allow API access to multiple financial service providers to access wholesales transaction banking. And we are built for financial services ecosystems.
But, when it comes to Open Banking, are there common standards.
There are some which have been published and we like the one which appears on Open Banking, a precis of which I include below:
· Open banking will mean reliable, personalised financial advice, tailored to your particular circumstances delivered securely and confidentially.
· To provide tailored advice banks and other financial service providers need to know how you use your account.
· Open banking will use APIs to share customer information securely.
· Third party providers will be able to use open banking APIs to see your transaction information to tell you what you might save when considering the current account best suited to you.
Indeed, there are no global standards as each bank will either have their own, or have one via a vendor, like Figo.de for example.
Here, at Railsbank, we have very strong beliefs about what Open Banking should be, and this includes:
- eco-system based;
- distributed digital ledger based;
- virtualised accounts across multiple providers;
- connected to any payment scheme (SEPA, MasterCard, VISA, faster Payments, PSD2 PISP, ACH etc.);
- capable of issuing NEW bank accounts and accessing EXISTING bank accounts (for example via PSD2);
- multi-product (creating bank accounts);
- embedded compliance, risk and fraud as core to the platform;
- highly transparent compliance data - end to end data for 100% transparency of ultimate sender and ultimate beneficiary;
- one API to go global
- removal of the systemic risk of compliance and single bank exposure.
So yes, we are going to have to endure a number of Open Banking definitions for some time yet, but there is a point to all this, as it reflects the way the industry is currently developing. Over time, a distinct definition will emerge, but only after a degree of maturity has spread throughout the sector.