With the introduction of PSD2, the European Union has laid the foundations for the trend towards Open Banking. In Europe, however, launching Open Banking was anything but a piece of cake. The security measures within the framework of directives such as GDPR, PSD1 and PSD2 created special challenges in the EU. We have already provided a detailed analysis of the who, how and what of this new banking era in our blog post on the history of Open Banking.
Nevertheless, Open Banking is not a purely European phenomenon – it is of interest to people across the world, which is why we’re opting to focus on the current global news in the financial sector. All over the world, financial companies, governments and banks are keeping a close eye on new developments in Europe, often to inspire themselves or at least to remain in the loop. But to what extent do they put into practice what they see happening? Discover what moves banks, FinTechs and businesses throughout the world.
Great Britain – The Pioneers of Open Banking
The Brits can justifiably be described as one of the pioneers of Open Banking. The United Kingdom’s Competition and Markets Authority was rewarded for its efforts to ensure a seamless and low-risk path for Open Banking. In fact, the UK was the first country to make Open Banking a reality. The first phase focused on data exchange, and this year will see the addition of payments and transactions. The guideline for uniform API standards is the key to ensuring secure and successful implementation.
According to a PwC study, the trend towards Open Banking is expected to generate over 7 billion pounds in additional revenue. In addition, 71% of the SMEs surveyed and 64% of the clients surveyed would like to integrate Open Banking into their everyday lives. However, even in England, financial institutions and banks face the great challenge of providing secure APIs in light of the new requirements. Many banks have been unable to meet the deadline and have been granted an extension.
Australia – Following in the Footsteps of British Banking
Australia is strongly influenced by developments in the UK and just recently took a big step towards making Open Banking a reality with a new draft law. The Australian government has been investing in the development of possible open API schemes since 2017 and commissioned a panel of experts in 2018 to publish a strategic report on the subject. Open Banking is expected to deliver groundbreaking changes in Australia, especially for borrowers. It promises to make the financial world more transparent, offering customers a wider range of financial service providers and greater control over their finances.
What are the consequences? Australia’s four largest banks - Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), Westpac and The Australia and New Zealand Banking Group (ANZ) – which hold around 95% of the market share, have been preparing intensively since last year to offer their customers new services and products via API banking. These four major players have now been instructed by the Australian government to allow third parties to view credit card information, transaction history and customer accounts at the customer’s request. Similar to PSD2 in the EU, this serves as the basis for new FinTech products and services as well as fast, easy lending.
Asia – A Continent on the Road to Open Banking
Hong Kong – An innovative financial hub
Asia’s financial and economic hub Hong Kong is the leading player in the Open Banking revolution in Asia. In January 2018, the Hong Kong Monetary Authority (HKMA) published a draft of the framework conditions for Open Banking in the Chinese Special Administrative Region. This served as a basis for public participation and should pave the way for increased competition in the banking sector and solid technical API standards for Open Banking.
Singapore – Small but bags of potential
In addition to Hong Kong, Singapore is also regarded as the driving force behind Open Banking. The Monetary Authority of Singapore (MAS) is actively encouraging regional financial institutions to provide APIs in order to offer enhanced innovation and compatibility with other financial service providers.
The MAS is well known for its progressive, forward-looking approach to financial technologies and their role in its small but dynamic economy. Against this backdrop, it comes as no surprise that Singapore immediately regarded Open Banking as an opportunity for increased diversity and competition in the banking sector.
China – Few obstacles to new banking
Continents like Europe can only marvel at the pace at which China is increasingly bidding farewell to cash and credit cards. The scepticism that is so prevalent in other parts of the world regarding the opening of bank structures and access to customer data can barely be noticed in China.
The road from development to implementation is much shorter in China than in other countries. Innovations that Open Banking made possible in the first place, such as the mobile wallet, are both widely accepted and dominate the market. Asian mobile payment services such as WeChat and AliPay lead the way with a market share of 93% of China’s mobile payments. Tao Tao, Business Development Director at AliPay EMEA, explains how heavily AliPay products influence the lives of users. He points out that a Chinese tourist, no matter where they are, simply has to open the ‘lifestyle super app’ to get personalised recommendations on accommodation, restaurants and places to go shopping. The app takes them to places where they can pay using the AliPay wallet. No money exchange, no cash in pocket – users simply have to have their mobile phone on hand.
However, security concerns are also making the headlines in China. 2FA (2 factor authentication) has just recently been implemented to help combat the huge amounts of QR code fraud.
India - A complex country full of innovative financial technology
India is officially still keeping a low profile, although political frameworks for account aggregation, alternative lending, blockchain and even its own cryptocurrency were created many years ago. However, financial technology in India is as complex as the country itself: With 29 states and a population of almost 1.4 billion, ensuring uniform standards requires more than a simple brainstorming session.
Nevertheless, the country has a lot of innovation to offer, which is why it is regarded by some media sources as the country on which hopes are pinned for the propagation of Open Banking in Asia. The following and other similar pioneering products make it easier for India and the local FinTech scene to venture into the world of Open Banking:
- Aadhaar: The largest central database of biometric identity recognition in the world offers huge potential for new financial services.
- IMPS: A payment service provider, similar to SOFORT, which has had considerable transaction volumes since 2010. By way of comparison: Many other countries do not have or only marginally use such services.
- UPI: A direct peer-to-peer payment system that works without brokers, promotes competition and cuts costs - similar to PSD2 in Europe.
The strong national interest in cashless payments also provides ample motivation to develop Indian financial technology even further.
Japan - The Olympic Games should be “open”!
In Japan, banks were encouraged to announce their partnerships with Payment Initiation Service Providers (PISP) and Account Information Service Providers (AISP) by March 2018. In 2017, the Japanese Financial Services Agency established a FinTech proof of concept (PoC) Hub, which selects innovative products and working groups to bring new products to the financial market. In the meantime, changes to the legislation require 80 Japanese banks to open their APIs by 2020.
In July 2018, a new regulatory authority, the Strategic Development & Management Bureau, was set up to develop a strategy for the financial sector in which FinTechs would play a pivotal role.
The signs point to innovation: All the players involved would like to significantly enhance the country’s banking and payment system before they host the Olympic Games in Tokyo.
United States of America - Open Banking, the American Way
While European banks have been subject to clear implementation regulations since PSD2 was introduced, US authorities hope that the banking sector can take advantage of Open Banking without government regulations. The government is more supportive than it is demanding. In fact, Washington wants to promote innovation without requiring it and wants to wait to see how Open Banking develops.
In 2018, the Financial Services Information Sharing and Analysis Center (FS-ISAC) introduced API standards that resemble the requirements of the EU’s PSD2. However, no concrete deadline was specified for banks to implement them. Unlike the European Union, the State assumes that market pressure will be sufficient and that this alone should be the deciding factor for the future direction of the financial sector.
However, financial institutions, FinTechs, legislators and customers expect well structured processes to be in place for the transfer of customer data to third parties and new financial services. As a result, Open Banking in the USA has hardly gained any momentum. Only large banks have reached private, and in some cases exclusive, agreements with individual partners that could make American Open Banking less ‘open’. Nevertheless, Open Banking will also gain importance in the USA in the future, albeit not with the same emphasis and pace as the European Union.
Canada - Customer-Centric Open Banking
Canada is dealing with the topic of Open Banking in a democratic way: In 2018, an Advisory Committee discussed whether to follow the British example. In the meantime, they decided to publish a strategic consultation paper on the benefits of Open Banking earlier this year. The public was consulted at the beginning of the year about their views on this document - individuals and organisations can now express their views on issues such as data security and data protection in phases of public involvement.
The Canadian government is confident that Open Banking will pave the way for innovative products and services, promote transparency in the financial sector and simplify day-to-day financial transactions for customers.
South America - Mexico Is Leading the Movement
Mexico is emerging as the pioneer of Open Banking on the Latin American continent. In 2018, it particularly made its mark by passing a bill which gives FinTechs added security when it comes to topics relating to crowdfunding, payment methods and cryptocurrencies. With the opening of the banking infrastructure and access to customer data for FinTech products and services, this new legislation forms the basis for Open Banking.
Ongoing discussions about implementing the API standards set by the Open Data Institute are stimulating discourses about Open Banking throughout South America. The National Banking Commission (CNBV) provided the first set of regulations for the financial sector in just six months. However, they are set to be expanded after 24 months at the latest.
We expect other South American countries to follow suit with their legislation. If they do so, Open Banking will dynamise the financial sector in the entire region.
Africa - Open Banking Is a Great Opportunity for the People
The future of the African financial world will be shaped by two factors: the strong inclination towards ‘mobile first’ and the high percentage of the population without any relationship to a bank or access to financial services. The benefits of Open Banking are obvious, especially in African regions where the population does not yet have access to banking services. This is where telecommunication providers often act as accelerators for Open API Banking.
For this reason, Open Banking efforts have focussed on alternative mobile banking solutions such as M-Shwari, M-Pesa or Tala. Open Banking could thus be the opportunity that Africa has been waiting for to modernise and democratise its banking system.
Despite many regional differences, the financial world across the globe agrees on this point: future customers should be able to decide for themselves what happens to their own data. In turn, this will have a positive impact on the banking experience. When used responsibly, Open Banking can create innovative services and new business models that benefit customers and diversify the financial sector. To date, both the EU and the UK have done a good job - what we need are other continents to be increasingly inspired by PSD2 and other similar directives to ensure that the future with Open Banking is a secure one.