Open Banking: Use Cases and Considerations
22nd June 2021

In a world where digitalization is constantly evolving, the banking industry has remained relatively untouched. However, in recent years, the market has witnessed numerous changes, like Open Banking. In their latest blog, our experts discuss this solution and how it can help merchants.

What is Open Banking?

Open Banking was created with the simple goal of providing better financial services to clients. Legislated by the European Union in 2015, the regulations aim to promote the creation and adoption of innovative online and mobile payments. By allowing more firms and products to come to market with data they have previously kept locked, they are able to use it in beneficial, innovative ways.

How does Open Banking work?

Application Programming Interfaces [APIs] are used to "open up" the user’s financial data and services. APIs, which are an inherent element of any technological infrastructure, provide a safe and efficient mechanism to uncover this information.

AIS and PIS – what do they mean?

Third-party providers are allowed authorized access to client accounts as part of Payment Services Directive 2 (PSD2). Two services that streamline the in-store transaction process are Account Information Services (AIS) and Payment Initiation Services (PIS).

Account Information Service (AIS) – this enables service providers safe access to consumer accounts and data, as well as the client's content. This allows the supplier to provide a more complete perspective of the user's finances, allowing for more in-depth analysis and insights.

Payment Initiation Service (PIS) – this enables service providers to develop innovative payment solutions that enable payments and financial transactions to be initiated. As they are bank account to bank account payments, they can reduce the cost of making payments while also increasing convenience.

In short, AIS focuses on account data gathering, while PIS primarily supports the creation of additional payment channels. Some interesting use cases for AIS include AI enabled budgeting Applications as well as enriched KYC and Credit Scoring based on the granularity of data available to uncover spending patterns for consumers.

Is Open Banking the “future” of FinTech?

Open Banking is becoming an increasingly popular solution within the Fintech industry, as it allows for the electronic and safe interchange of financial information. Banks and FinTech’s can build new applications and services that are tailored to the needs of their clients by granting licensed suppliers’ access to this data via an open API.

While APIs simply allow software programs to connect with one another, they do offer up a new avenue for innovation as banks all over the globe make their APIs available to licensed third-party providers. As a result, open business models are driving the future of banking.

In the UK alone, Open Banking customers increased by 200% in the last 12 months, jumping from one million in January 2020 to three million a year later. These figures are nothing compared to what the Asian market are seeing, in South Korea there are over 20 million users, whilst it is expected to gain traction in the United States.

One of the reasons for this explosion is due to the significant benefits. Open Banking avoids the possibility of money being mishandled making it appealing to businesses, whilst it is favourable with consumers because of the decreased transaction costs associated with online transactions.

However, the growth of Fintech companies that are replacing services traditionally offered by banks is a possible drawback for Open Banking.  Low customer credibility is also a problem, as until now there have been lack of trust on the part of customers towards Open Banking.

With the banking industry becoming more competitive, most institutions are attempting to use FinTech to their advantage. At DNA Payments we firmly believe that offering Open Banking to our merchants will help them to engage and retain their consumers.

If you would like to understand more about our Open Banking solution, and how it can meet your requirements, contact one of our experts today.