In the US, market-led initiatives have become the driving force behind Open Banking – a secure data-sharing approach enabled through application programming interfaces (APIs).
The emerging trend is helping to create seamless integration between service providers – including banks, fintechs, and alternative financiers – and driving increased collaboration between banks and third parties. Rather than viewing these parties as competition, financial institutions (FIs) are embracing the wealth of partnership opportunities to leverage new technologies, improve their offerings, and facilitate ease of access to a range of solutions to optimise their clients’ experience.
But where might Open Banking have the biggest impact, and how can the industry unlock its full potential?
Open Banking has the potential to significantly improve B2C capabilities and services to resolve many of the industry’s current shortcomings. By empowering consumers and businesses to securely share their account data with trusted third parties, banks and fintechs together will be able to utilise this information to craft bespoke products that better serve clients and their needs.
When Open Banking capabilities are embedded into online platforms, businesses can offer their end customers the ability to seamlessly initiate payments directly from their bank accounts. This facilitates the flow of payment data between the end customer, the corporate, and the bank – benefiting all parties in the payment process.
Combining the payment expertise of trusted FIs with the Open Banking capabilities of fintechs brings synergies that complement the core competencies of each. Banks can provide exceptional services in execution, reconciliation, and security, while fintechs take this expertise and wrap it up in a user-friendly, streamlined service that provides an improved experience for clients – both businesses and consumers alike.
Such is the case with BNY Mellon’s recent endeavour with Bankify, an Open Banking payments solution co-developed with Trustly that is designed to provide clients with a low-cost, secure, and efficient alternative to existing methods. Potential clients of the new service include merchants, billers, or financial service providers using the capability for account funding, with use cases including online purchases, funding investment accounts, consumer bill payments, student loans, and auto loans, among others.
Picture the scene: an electricity company has reached out to one of its customers requesting this month’s bill payment. Typically, the customer would choose to pay this bill using their credit or debit card. While this is relatively seamless for the customer, from the biller's perspective, the high associated interchange fees mean this payment method comes with significant downsides.
Now, and thanks to the collaboration with Trustly, when the customer gets to the checkout screen there are multiple payment options for the customer to choose from, including Bankify’s ‘pay by bank’ option. By picking this option, the customer’s bank account information is retrieved and validated through an authorised framework – at once confirming that the account details belong to the customer and that the requested funds are available. Once these details have been validated, the customer simply clicks ‘pay’ and the payment is taken directly from their account.
For the customer, the payment experience is quick and seamless, while for the merchant the settlement of the payment is guaranteed for ACH payments – reducing the risk of returns and chargebacks – and comes with considerable cost savings compared to comparable payment methods.
More broadly, Open Banking has sent ripples throughout the industry, but there is still progress to be made to achieve its maximum potential. A pervading issue is the lack of harmonisation and standardisation in creating industry API frameworks, which has resulted in a litany of templates and tools that are available to developers to create innovative products and services. Due to this, the vast majority of banks are forced to create their own API frameworks with their fintech partners. This is both expensive and time-consuming.
What’s more, without a standardised approach, banks will find themselves set apart from others in what products and services they can provide to their customers. This is the direct opposite of what Open Banking is attempting to achieve, which is to level the playing field for third-party providers and inspire innovation and collaboration.
Certainly, Open Banking is a tool that will propel banking services into the future. It is important for the industry to continue working together with the collective ambition of creating a standardised approach, so that progress in developing products remains evenly distributed, enabling the industry to continue innovating together.
The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute Treasury Services advice, or any other business or legal advice, and it should not be relied upon as such.
This editorial piece was first published in the Open Finance Report 2023. We encourage you to download the report and find out the latest trends and developments in the world of Open Banking and Open Finance, as the road to Open Data continues.
Carl Slabicki is the Co-Head of Global Payments for BNY Mellon’s Treasury Services. Carl is responsible for the Payables and Receivables product group that delivers specialised solutions to optimise payment flows for our multi-segment corporate clients, our bank clients in a white-label capacity and our strategy to partner with fintechs.
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