What is Open Banking?

Open Banking is a financial services term that refers to a new era for the financial sector. It opens the door to innovation and caters to consumers and their needs, while maintaining a strong focus on security.

In this guide you will find all the most important information about Open Banking, including its definition, examples and benefits. We will also look at how companies can make the most of Open Banking with the help of Unifiedpost.

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Specifically, what is it about?

In a nutshell, Open Banking describes the practice of banks sharing various data with regulated third-party service providers. Banks provide access to consumers' banking services, transaction data and other financial information. This data is shared through secure APIs.
The goal of open banking is to improve financial services for consumers. Opening up data that traditional banks have historically held creates opportunities. Open banking opens more space for new companies to enter the market and offer new and innovative products that benefit consumers.
It is important to note that all of the above data is only shared when the customer agrees to provide the information.

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Opening up data creates different opportunities for the parties involved:

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• Unifiedpost, as a fintech, now has all the data and tools it needs to create innovative products and services.
• Companies can use the solutions offered by authorized financial service providers to improve their financial tools and payment flows. 
• Consumers enjoy more opportunities to spend, borrow and invest their money.

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How does Open Banking work?

Traditional vs. Open Banking

As mentioned above, Open Banking uses APIs to share data. Before going on to explain this data sharing, it is important to understand how APIs work. Simply put, APIs are a way for software to communicate with other software and exchange information.

In Open Banking, banks provide their APIs to authorized financial service providers. These APIs contain various data, such as the account holder's name, account type, currency, transaction history, etc.

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This information is only made available to third party service providers when the account holder explicitly agrees to share the data. Consumers usually give their consent through an online form, agreeing to the terms and conditions.

Once the consumer agrees to share their data, third party service providers can access the relevant shared information through APIs. We are solely responsible for creating and implementing the APIs.

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What is an API in Open Banking?

In Open Banking, banks share their APIs with authorized third parties to exchange financial information about their consumers. Fintechs and other companies use this data to develop new applications and services that improve the customer's banking experience.

By law, all banks must provide qualified third parties with automated access to customers' financial information. APIs are used to create secure communication between online banking systems and third parties.

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What is an example of Open Banking?

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1. Payment initiation service (PIS) - Payment initiation service 

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Thanks to Open Banking, companies can use it to offer their customers a better payment experience. Online service providers have entered the market and significantly improved payment flows.

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In the past, for example, consumers used to have to pay for goods and services by online transfer from their bank account. To do this, they had to open several different windows, copy and paste or even type in their account details to make the payment. This payment process was cumbersome, risky and time-consuming.

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With Open Banking, Unifiedpost Payments enables the creation of convenient payment initiation services. These innovative solutions enable consumers to securely pay for products with just a few clicks. Improved payment flows also increase sales, as fewer shoppers abandon their carts due to a cumbersome checkout process.

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2.Payment Services Directive (PSD2) - Payment Services Directive 

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PSD2 is the new European Payment Services Directive 2 which aims to contribute to a more integrated, transparent, secure and innovative single market for payment services in the European Union. This new Directive eliminates the "middlemen" in the way we make payments and decentralizes access to bank account information. But note that this will only happen if you allow it. This is called "open banking". What does "open banking" mean?

From now on, banks will have to share certain services and information about their customers with other organizations (either competitors or fintech companies).

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In practice, banks will no longer be the only ones to keep all the information about your accounts, your banking data and these entities will be able to carry out transactions on your behalf, provided they have your authorization.

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The revised Payment Services Directive (PSD2) updates and complements the rules established by PSD1. The new rules aim to:

• Contribute to a more integrated and efficient European payments market.
• Make payments more secure and efficient.
• Promote a level playing field among payment service providers.
• Strengthen consumer rights.
• Encourage the adoption of innovative payment services.

3. Account Information Service (AIS)

Open Banking allows lenders to quickly access information from different banks. In the past, if someone applied for a loan, the lender had to collect large amounts of information about the person's financial history. This was a time-consuming process to compile the data and required resources from all parties involved: the lender, the banks and the applicant.

Banking APIs make the process much easier. The lender can digitally request information from the banking APIs and receive it in a matter of seconds with the applicant's permission. The process becomes much faster and requires far fewer resources than before.

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4. Less transaction fees

Consumers rarely think about the fees merchants have to pay for accepting card payments. Each card transaction can include up to 15 different types of fees, which can inflate the cost of goods and services.

To avoid these fees, physical store merchants sometimes have to make difficult decisions. Some choose not to accept card payments. Others may set a minimum fee or force consumers to pay more for card payments. Online merchants ask customers to transfer money from their bank accounts, which involves a number of steps discussed above, and makes the whole thing impractical and time-consuming.

Open Banking has paved the way for shoppers to pay for goods and services directly from their bank account. Consumers can even connect their bank accounts to a merchant's app or website and make payments with a single click. Paying directly from bank accounts eliminates all card processing fees and benefits both merchants and consumers.

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Why do we need Open Banking?

For many years, banks have been one of the most overburdened sectors.

Although many people appreciate conservative approaches to finance, the situation has mainly benefited the largest banks and not consumers. There used to be no room for innovation in the banking sector.

Open Banking is a breath of fresh air compared to this traditional method. It opens the door to much-needed innovation in the financial sector and brings it out of stagnation. These are the main reasons why we need the new banking system:

• It creates more competition for banks and challenges them to offer better products and services at better prices.
• It shifts the focus away from generating funds for banks.
• The new way of banking leaves more room for innovation and encourages companies to find solutions to long-standing problems.

Whatare the advantages of Open Banking?

Open Banking offers several advantages to companies or financial institutions and customers, but the main ones are:

• Improved customer experience.
• New sources of income.
• Sustainable service model.

Benefits for companies

Access to data - The new system has democratized the space long dominated by traditional banks. With the help of Unifiedpost, companies can now access the same data as large banks, creating fairer opportunities for businesses of all sizes. Even smaller companies now have the tools they need to join the competition.

Better customer engagement - The data that Open Banking makes available enables companies to provide personalized offers to their customers. Data analysis helps to make relevant suggestions to different customers based on their financial habits, thus increasing customer engagement.

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Advantages for consumers

Centralized information - Open Banking has made it possible to keep track of financial information in one place. All data can be accessed through one application, enabling users to make informed decisions and better manage their personal finances. In this way, consumers gain greater control over their savings.

Customer experience - Since the introduction of Open Banking, almost every major bank has created a mobile app, digitized a large part of their services and drastically reduced waiting times for their customers. At the same time, fintechs such as Unifiedpost have introduced various solutions that improve payment flows, facilitate lending and simplify investments.

Innovative solutions - Many solutions are being developed with new banking systems that benefit consumers. Open Banking has created faster and simpler payment flows and digital banking services. You can begin to imagine what great innovations will come next.

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Did you know that the days of paper are numbered? The digitization of companies is here to stay. More information, read HERE.

Simply consult your accountant and follow these steps: digital and real-time connection, no more red tape and sudden document input!

‍Wondering how you can optimize your electronic invoicing and payments with Banqup?

On our website you will get all the information!

BANQUP | Much more than electronic invoicing

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