What is open banking, and how is it being rolled out around the world?

Open banking (whereby consumers share their financial data with regulated third-party providers (TPPs) through APIs) is being rolled out around the world. But how exactly is it being rolled out? Does open banking operate on agreed global standards? What open banking use cases are emerging? And are businesses and consumers seeing the benefits?

Understanding Open Banking

We will unravel the answers to each question, but first, a quick definition of "open banking" in English. In its broadest sense, open banking means "opening up" your banking data without permission in order for licensed businesses to provide services. This data can include:

• Your transactions. For example, mortgage providers can analyze balances and transaction data to better understand the borrower's financial situation.
• Account holder data. Online auction sites may use microdeposits to verify the bank accounts of new sellers. Not only is it time-consuming, but the onus is on the seller to verify the microdeposit amount. Open banking as an account verification tool is quicker and leaves no room for error. Sellers simply log into their bank app and tap to confirm that they are happy to securely share their data with the auction site.

AIS and PIS: Key Components of Open Banking

The above use cases fall under the “account information” side of open banking (or, as they’re officially called in the UK, Account Information Services or AIS). The other side is “payment initiation services” (PIS), where this data – account holders and account balances – is used to initiate payments from the consumer’s bank account to the payment company’s account.

PIS: A challenge to cards’ decades-long dominance?

These open bank payments have generated a lot of hype, and rightly so. It’s the first time that e-commerce doesn’t rely on card payments. Consumers don’t have to manually enter card numbers and CVV codes, and there’s no worry about card information being stolen.

One example of the hype: According to Juniper Research, the global total value of open bank transactions will grow to more than $330 billion by 2027. Meanwhile, in 2023, it was $57 billion. Let’s talk about real hockey growth.

Commercialising account-to-account payments

Open bank payment is quick because it is made from an account to an account without a broker. In fact, it is called "rea l-time" because it is almost instantaneous. This speed also depends on the UK's fastest payment, EU's SEPA instant, and rea l-time payments like Brazil's pix.

However, these rails were not originally designed for consumer payment. It is ideal if you need to start a bank remittance for payment to friends and payment of invoices, but before PSD2 (EU regulation that opened the way to open banking), rea l-time payment is an electronic commercial transaction. Was not supported.

Open Banking Payments vs. Real-time and Account-to-Account Payments

In the context of e-commerce, open banking, rea l-time payment, and interconnection payment are essentially the same. Therefore, these terms are often used in the same sense.

However, if it exceeds the frame of electronic commerce, there is a subtle difference between both:

Open bank payment refers to transactions promoted by TPP, which starts with the user's bank account. Therefore, direct bank transfer, in which the user enters the account number and classification code manually, is not an open bank payment.

Rea l-time paying rea l-time payment refers to paying in real time (in other words, is settled almost instantaneously). This is often referred to as rea l-time payments because it applies to open bank payments. But this is true for other use cases. For example, payment from a company to another company from a supplier.

Orthodox payment refers to transactions that are transferred directly from a bank account to another bank account. This corresponds to either open bank payment, manual bank remittance, and rea l-time B2B payment.

The Benefits of Open Banking

Open Bank payment is literally a payment between accounts (basically automated bank remittance), so there is no costly intermediary.

Online retailers will be paid by customers in real time (in a few seconds instead of a few days) by selecting "Pay BY BANK (bank transfer)" at the time of chec k-out. Can do.

In addition, payments are made in the customer's online banking environment, which can benefit from ban k-level security. There is no worry about card fraud.

The Role of Open Banking APIs

As I mentioned at the beginning of the article, the API is an open banking, and the TPP is a means to connect with a bank and access consumer data. The API is described in detail here, but it is basically composed of two types of software connecting to each other and sharing information.

One is created by the consumer's bank (in the European financial industry and in the UK, banks are obliged to create open banking APIs), and the other is by TPPs, which requests consumer data from the bank's API. This data must always be given explicit permission by the consumer to share, and is always encrypted.

Global Rollout of Open Banking: A Fragmented Landscape

That's roughly what open banking is and how it works. But how is it applied around the world? Open banking is a global phenomenon with worldwide reach, but its development is also taking place domestically. The way open banking works in Brazil is not the same as in Germany. The national "schemes" (of which there are more than 80) are essentially different. They were not designed to work together.

This lack of interoperability is a real problem for global companies that want to take advantage of the open banking revolution, but to do so they need to make multiple integrations between multiple systems. Not only is it cumbersome, but it has wider implications in terms of a) providing a harmonious payment experience for users and b) effectively handling cross-border payments.

Turning challenges into opportunities

And then there's the issue of API banks of different quality. In the UK, API banks are created based on defined standards. This is not the case in other parts of the world. Poor quality of banks’ API connections is one of the main reasons why open bank payments fail. This means that not only do open banking mechanisms differ, but they are also differently reliable and robust in design. At Volt, we are building something that overcomes both these interoperability and resilience challenges.

Before we dive deep into the world’s open banking systems, a word of caution. With so many to choose from, we focused on those that a) serve as blueprints for success and b) reflect two different approaches:

• Guidance: Governments set the rules and roadmaps, banks are expected to act and are given a framework to develop products and solutions.
• Market control: Banks recognize the commercial potential of API-based collaboration with TPPSs and, in the absence of government guidance or support, make their own rules.

We also tried to highlight at least one open banking initiative from each continent.

Now, time to jump in.

Open banking in the UK: Leading the Charge

The UK's open banking system is open banking and teleported. This system, which was introduced by the country's Competition Market Agency (CMA) and adopted the European Second Payment Service Directors (PSD2) in every sense, was common standard for 9 major banks in the country. I was obliged to launch an open API.

Here is the biggest difference between open banking and PSD2. In both cases, as a means of opening customer financial data to the TPP, banks are required to create APIs, but open banking requires banks to create APIs based on the standard described above. The project was supervised by Open Banking Employer Entity (OBIE), but in effect, it has been substituted by the "future business".

Rapid Growth of PIS Adoption

From the PIS's point of view, the open banking has a remarkable success. According to OBIE's October 2023 IMPACT report, 9. 7 million ope n-banking payments on the fastest settlement rail began in June 2023, increasing 88 % from June 2022. The report also reveals the following:

• The amount of open banking payment, which was held in the first half of 2023, was twice as the first half of 2022.
• The average transaction amount for open banking payment is 450 pounds. The total of these is about £ 4. 5 billion per month.
• At least one in nine British consumers actively use open banking

What will happen in the future? By the way, the CMA, the Ministry of Finance, and the Financial Action Survival Organization (JROC) set a vision to the next phase of the opening banking in April 2023. In addition to the transition to Oby's future entrepreneurs, some development proposals stand out.

The Impact of VRPs on UK Payments

In other words, the no n-sweep type VRP introduces the concept of lon g-term consent to open banking. VRP should be considered a natural successor to car d-in filing and account debit. In other words, an i n-file operated by a bank. By setting parameters (transaction frequency, transaction amount, etc.) on behalf of the member store, consumers prior to pay for the variable amount.

What are the use cases for commercial VRP? For example, online grocery shopping. A customer creates a VRP with their favorite supermarket, sets the parameters once, and all future transactions are one click or tap away. VRPs are not as flexible as fixed fees (there is no fixed amount or frequency of payments), and are more secure and less boring than regular card payments (no tamper data such as card numbers and CVV codes are stored, and unlike cards, there is no expiration date on bank accounts).

It is an integrated experience where convenience, speed, and security are the priorities for consumers, and faster payments, lower costs, and higher conversions are the priorities for merchants.

Open Banking in Europe: From PSD2 to PSD3

In January 2018, PSD2, a European Union (EU) directive to promote innovation in electronic payments, came into force, and Open Banking was born. Part of its mandate was to require banks to create APIs that TPPs could connect to in order to provide AIS and PIS services to consumers.

This was a big step, because for the first time, banks no longer had full control over their customers' data. More power was given to the end user. By sharing their data with TPPs, consumers can now search for the mortgage that best suits their financial situation or use their bank account as a payment instrument.

Navigating a Fragmented Competitive Landscape

There is no equivalent of OBIE in the European bloc - its mandate is simply too long to be practical - but it is worth pointing out two things. First, the quality of banking APIs varies across Europe because, unlike in the UK, there is no single standard. National governments and regulators handle them in subtle ways, which creates fragmentation problems.

Second, getting statistics on end-user adoption across the continent is much harder, not only because they are similarly fragmented, but also because open banking payments directly compete with national account-to-account payment systems like iDEAL in the Netherlands and BLIK in Poland. However, according to Statista, open banking users in Europe are expected to reach 64 million in 2024, up more than 400% from 2020.

What happens next? There are three developments to watch:

1. PSD3: In June 2023, the European Commission announced that PSD2 would be developed to PSD3 and to introduce new payment services regulations. The rough purpose of the two regulations is the improvement of the performance of the API, the elimination of barriers to the start of payment, and the consistent user experience.
2. Migration to direct payments throughout the continent: In February 2024, EU restrictions were officially adopted to enable companies and consumers to fully use direct paying throughout the single euro settlement (SEPA), and the transition period A new rule will be enforced after the end.
3. The appearance of the Dynamic Rikurin Ring Payment (DRPS): The European VRP has the potential to change, but it is difficult to realize because there is no equivalent Obie. The key is that the entire bank is involved in DRP's trials and is ready to cooperate with the TPP.

Open Banking in Brazil: Pix and Open Finance

In November 2020, the Brazil Central Bank launched a pix, an open payment system that was substantially equivalent to the country's PIS. It is no exaggeration to say that this was successful.

Not only will all the financial and settlement institutions with a certain size participate, but in the use case of individuals, individuals, individuals, and corporate companies, consumers and companies "Safe, Simple and Intuitive User Experience" Is required to provide.

Benefits of Pix Payments

In addition, I would like you to take into account the immediate payment of PIX, the possibility of ful l-time use, and the low price for companies. By the summer of 2023, more than 150 million active users in PIX were. At the same time, the monthly transaction volume has begun to reach 3 billion, and settlements among the staff account for nearly half.

PIX is very popular, and it is now the most preferred payment method in Brazil, overtaking debit cards and credit cards. It is now the second most used rea l-time payment system in the world after the United's United Payment Interface (UPI).

Open Finance: The Next Step

Following PIX's "Hot on the Heels" away from what is specialized in payment, Brazil's open finance concept. The open finance, which began several months after the "Big Brother" in February 2021, is an infrastructure that promotes "exchanging data, products, and services between regulated entities," in other words, an open banking version. be.

Although it is still in an early stage, there is almost no doubt that the integration of Open Finance in pixes will lead to the waves of payment products. The aforementioned entity (TPP in another name) can now optimize pix chec k-out for specific commercial use cases, such as checkout of electronic commercial transactions and loan repayment. In addition to Ratam countries, other countries must pay attention.

Open Banking in Australia: Integrating NPP and PayTo

Australia's open banking Initiatives, like the UK, is known as open banking, but is directly focused on data. In other words, it is AIS. There is no mission to start payment. Despite the similarities to Brazil, the development of Brazil has been launched 24 hours a day, 365 days a year, and at the same time as the launch of a new settlement platform (NPP), which promotes rea l-time payments for consumers and companies.

Comparing PayTo and PayID

NPP has two bank payment methods, Payto and PAID. The former is definitely more interesting from the viewpoint of "open banking" because the TPP can start payment from a consumer bank account. What users see when checking out is along with the ol d-fashioned payment method, as you can imagine, in terms of settlement speed and safety, the same merit as the same rea l-time rail elsewhere. There is.

Rich data, which is the core of open banking, is the core of the Payto function. An interesting and potential use case is to see consumers browse trading data in the banking app and attach receipts and invoices for each purchased product. Such a scenario is never possible with a card and highlights the transformed Paito.

Open Banking in the US: The Role of FedNow and RTP

In November 2023, US regulators announced measures to make consumers more easily shared financial data. The Personal Finance Protection Bureau's "Personal Financial Information Rights", like the United Kingdom and Europe, is obliged to create an open API for banks to connect to the TPP.

It is an industr y-led "open banking" and is supported by a tw o-part agreement between a bank and a data agrigator. However, the security that supported data sharing was not standardized. Screen screen was natural. < SPAN> Although it is still in a relatively early stage, there is almost no doubt that the integration of Open Finance in pixes will rush to the wave of payment products. The aforementioned entity (TPP in another name) can now optimize pix chec k-out for specific commercial use cases, such as checkout of electronic commercial transactions and loan repayment. In addition to Ratam countries, other countries must pay attention.

Growing Consumer Demand for Open Banking

Australia's open banking Initiatives, like the UK, is known as open banking, but is directly focused on data. In other words, it is AIS. There is no mission to start payment. Despite the similarities to Brazil, the development of Brazil has been launched 24 hours a day, 365 days a year, and at the same time as the launch of a new settlement platform (NPP), which promotes rea l-time payments for consumers and companies.

The Role of Real-Time Payouts

NPP has two bank payment methods, Payto and PAID. The former is definitely more interesting from the viewpoint of "open banking" because the TPP can start payment from a consumer bank account. What users see when checking out is along with the ol d-fashioned payment method, as you can imagine, in terms of settlement speed and safety, the same merit as the same rea l-time rail elsewhere. There is.

Rich data, which is the core of open banking, is the core of the Payto function. An interesting and potential use case is to see consumers browse trading data in the banking app and attach receipts and invoices for each purchased product. Such a scenario is never possible with a card and highlights the transformed Paito.

Real-time payouts: A golden opportunity

In November 2023, US regulators announced measures to make consumers more easily shared financial data. The Personal Finance Protection Bureau's "Personal Financial Information Rights", like the United Kingdom and Europe, is obliged to create an open API for banks to connect to the TPP.

It is an industr y-led "open banking" and is supported by a tw o-part agreement between a bank and a data agrigator. However, the security that supported data sharing was not standardized. Screen screen was natural. Although it is still in an early stage, there is almost no doubt that the integration of Open Finance in pixes will lead to the waves of payment products. The aforementioned entity (TPP in another name) can now optimize pix chec k-out for specific commercial use cases, such as checkout of electronic commercial transactions and loan repayment. In addition to Ratam countries, other countries must pay attention.

Australia's open banking Initiatives, like the UK, is known as open banking, but is directly focused on data. In other words, it is AIS. There is no mission to start payment. Despite the similarities to Brazil, the development of Brazil has been launched 24 hours a day, 365 days a year, and at the same time as the launch of a new settlement platform (NPP), which promotes rea l-time payments for consumers and companies.

Open Banking in India: The Success of UPI

NPP has two bank payment methods, Payto and PAID. The former is definitely more interesting from the viewpoint of "open banking" because the TPP can start payment from a consumer bank account. What users see when checking out is along with the ol d-fashioned payment method, as you can imagine, in terms of settlement speed and safety, the same merit as the same rea l-time rail elsewhere. There is.

Rich data, which is the core of open banking, is the core of the Payto function. An interesting and potential use case is to see consumers browse trading data in the banking app and attach receipts and invoices for each purchased product. Such a scenario is never possible with a card and highlights the transformed Paito.

UPI’s Merchant Benefits

In November 2023, US regulators announced measures to make consumers more easily shared financial data. The Personal Finance Protection Bureau's "Personal Financial Information Rights", like the United Kingdom and Europe, is obliged to create an open API for banks to connect to the TPP.

It is an industr y-led "open banking" and is supported by a tw o-part agreement between a bank and a data agrigator. However, the security that supported data sharing was not standardized. Screen screen was natural.

Becoming the Leading Account-to-Account Payment Method

There is certainly consumer demand for open banking in the U. S.; according to Forrester, a large majority, two-thirds, are willing to share their banking data with third parties. The move to secure APIs and broader banking coverage will certainly help cultivate and accelerate this demand.

FedNow, the Federal Reserve’s new instant payments infrastructure, will be key to the future success of open banking payments in the U. S. FedNow, which launched a few months before the Personal Financial Rights Rule was announced, currently has more than 650 banks participating, but the Fed aims for 9, 000 banks to eventually support FedNow.

Open Banking in Singapore: The Role of PayNow

Alongside FedNow, the Clearinghouse’s RTP rails are also growing in both payment volume and number of participants. Launched in 2017, RTP has been slow to gain traction but has recently surpassed a milestone. For example, on March 1, 2024, it processed 25 million payments in a single day.

Since FedNow and RTP are credit or "push" only Rails, the current business opportunity is in real-time payments. Use cases include gig economy payments, loan payments, and profit withdrawals from brokerage platforms.

PayNow: Singapore’s Equivalent to UPI

The opportunity gets even more exciting considering that a Request for Payment (RFP) is imminent that will allow companies to seamlessly initiate real-time payments from consumer accounts to business accounts.

A study conducted by McKinsey & Company in January 2024 revealed the true potential of invoice-to-invoice payments in the United States. McKinsey & Company predicts that the total will reach approximately $200 billion by 2026, citing the benefits of increased choice for merchants and improved usage paths for consumers.

In India, open banking payments are being used to pay for everything, whether you're buying a mango lassi from a street vendor or a new iPad at an Apple store. But "open banking" is a lesser known term. To locals, it's UPI payments, short for the aforementioned United Payments Interface.

Open Banking in Bahrain: Pioneering Open API Schemes

In 2016, the UPI developed by NATIONAL PAYMENTS CORPORATION OF India (NPCI) and regulated by India Bank (RBI) is a smartphone and a bank account of the participating bank. You can send payment directly to your account. Users can create a UPI profile and link a bank account.

The benefits are clear for merchants. Direct payments are a big advantage, of course, but the most of these solutions is that most of the transactions are free. Fees are applied only to hig h-priced transactions, even in that case, much lower than the card scheme commission.

Strategies for Success

There is no doubt that UPI is a great success. According to the RBI data, the UPI uses 1. 900 rupees for 100 rupees used in debit cards for 12 months until March 31, 2023. Cards are not simply attractive proposals for Indian consumers who prefer the convenience and availability of interconnection.

According to the latest data of NPCI, the payment amount made using the UPI in January 2024 was 18. 4 trillion, which was a new monthly record, increasing by 52 % from the number recorded in January 2023. 。 It is no exaggeration to say that UPI has changed the Indian retail business. By doing so, UPI has become the world's most used inte r-oriented payment system.

Open Banking in Nigeria: Developing New Infrastructure

UPI is the rea l-time payment component of INDIA STACK, the government's initiative to promote financial inclusion, and is basically a national approach to open banking. The other two elements, identity and data, have a wide range of similarity to the AIS use case of other countries.

The Singapore Finance Bureau (MAS) has adopted a marke t-led approach to open banking. In other words, we believe that TPP foresight and innovation will advance the eco system of the microscope rather than a specific law.

Nevertheless, MAS has a partner with the Singapore Bank Association (ABS) to publish guidance on the development and use of open APIs, and encourage collaboration between banks and FinTech companies. According to Finastra, Singapore was ranked first in Apac in response to open banking.

Striving for a Standardized API

As part of its mission, ABS was eager to launch a between account payment network directly integrated with the bank system. In 2017, ABS launched Paynow, Singapore's answer to UPI, with the full support of MAS. These two schemes were so similar that they were actually integrated in 2023, and users were able to remittance between two countries.

Paynau's use case usually starts with a normal QR code (in some cases, a corporate unique number (UEN)). Participating bank apps have a "scan and pay" function. If this is selected and the Member's QR code is scanned, the user can receive the approval and read y-t o-start payment information.

Volt’s Role in Shaping Global Open Banking Infrastructure

Paynow, with about 5 million users, including more than 80 % of Singapore consumers and companies, quickly became the leading role of Singapore's settlement ecosystem and became part of other rea l-time payment systems in APAC.

In November 2018, Bahrain National Bank (NBB) announced a regulation order that all the banks in the mainstream kingdom must hire, and moved the first Middle East's first open banking system.

Introducing our world-first open banking platform

One year later, Bahrain's open banking platform (designed according to personal financial management status) was operated. The function provided by FinTech's Tarabut Gateway is mainly for account consolidation. In other words, NBB customers can see and see the financial status of all accounts.

Usage examples have been quickly expanded, and bank payments have become possible. In 2021, Tarabut Gateway was partnering with the telecommunications company Zain Bahrain, and customers could purchase credit directly from the bank account in real time. In addition, a partnership with the encryption platform continued.

In parallel with the spread of consumers, if more partnerships and cases of use are born, open banking payments will have a clear path to success in Bahrain. Without a domestic rea l-time payment system, local card systems are the only competition other than cash, along with large electronic wallets.