Voice of the Industry

Five common questions about Open Banking

Monday 20 December 2021 08:59 CET | Editor: Vlad Macovei | Voice of the industry

Open Banking generates a lot of buzz but most people lack a clear understanding of what it means. Trustly's Ciaran O’Malley answers five of Open Banking’s FAQs

Open Banking is a topic that gets lots of buzz. But it isn't one that most people have a clear understanding of. Here are five of the most common questions people ask me about Open Banking. 

What is Open Banking?

I usually tell people that Open Banking is a concept. It is also a set of standards and regulations. In reality, Open Banking is a lot of things. 

It’s an enabler of finance activities. Open Banking is part of a greater movement towards a more open financial ecosystem with a greater value for consumers. It is about opening up everything from energy consumption, driving habits, and financial well-being. 

Open Banking also comprises a set of standards. PSD2 established the first concrete principles of what Open Banking should be in Europe, with the accompanying Regulatory Technical Standards (RTS) providing a framework for banks to build APIs. The standards define the relationship between the banks, consumers, and fintechs.

In the UK, The Open Banking Implementation Entity (OBIE) took a step further, creating detailed specifications for the APIs and user experience in a harmonised technical standard. While in Europe, groups like STET and the Berlin Group have also sought to harmonise the APIs banks are delivering to the market.

These APIs have created a foundation for fintechs to access payment account data and initiate highly secure payments. These players are making payments safer, increasing consumer control, while also fostering innovation and competition.

What are some use cases for Open Banking?

I divide the use cases into two categories: ‘write access’ and ‘read access’.

Write access is the most exciting part of the industry. It allows fintechs to trigger actions from banks on behalf of customers through the API. In many cases with a click and a fingerprint or Face ID.

Open Banking payments are already on course to revolutionise ecommerce payments, with customers paying for everything from clothing and electronics, to transferring their savings to an investment platform. 

And we are only at the start. Innovations such as variable recurring payments hold enormous potential for the future of Open Banking payments.

Read access gives customers the freedom to decide who to share their transaction data with, again delivered through a simple API. 

Innovation is widespread in this area too. Over 2.5 million UK bank customers now connect their accounts to licenced third-parties. That’s up from 1 million in January 2020, according to OBIE. 

An example of a use case built around ‘read access’ is an aggregator that provides a ‘financial dashboard’ overview of all of your accounts. Another example is a mortgage broker using ‘read access’ to make your application easier. 

What’s driving the development of Open Banking? 

Today, there are 40 markets with some form of Open Banking live. Development is driven by a combination of regulation and market demand.

‘Read access’ tends to come from regulation. ‘Write access’ comes from an opportunity to monetise.

The UK and the EU are the only regions where regulation governs both ‘read access’ and ‘write access’. So, this is where we have seen the greatest development of adoption from both consumers and businesses. 

In Australia, for example, Open Banking is regulation-driven. Here, the conversation is currently focused on ‘read access’, but we have high expectations for the future or ‘write access’.

In the US, we see market-driven adoption. There are steps towards regulation, but banks are getting out ahead of it and proactively moving towards partnership models with fintechs.

Why should I use Open Banking Payments rather than other debit methods?

Open Banking delivers unrivalled customer security with a convenient and seamless payment experience. Payments can be confirmed with a single fingerprint or Face ID with no need for manual entry of a 16-digit card number.

There’s no card to lose or be stolen. With no numbers to enter (or re-enter on expiry), the payment process is significantly easier. 

And customers do prefer paying with money they have. In the EU 64% of consumers said they prefer to pay with debit over credit, according to a Trustly survey. In the UK, the figure was 71%. 

As Strong Customer Authentication (SCA) rolls out across the EU and UK, 2-factor authentication (2FA) with cards has proven clunky and reduced conversion.

With an Open Banking Payment, the SCA is built-in and the payment can be instantly authorised using a biometric ID on my phone. That gives both me and the merchant reassurance that I authorised that payment. 

Why are more businesses accepting Open Banking Payments?

For merchants, there are loads of benefits in accepting Open Banking Payments. Driving down costs, eliminating fraud, and speeding up the settlement, are all on the list. 

But, there are challenges. For a multinational, it is tough to realise those benefits across all markets. There are big differences in regulation, service providers, and accessibility of Open Banking. 

Open Banking APIs don’t support refunds and can lead to businesses being overwhelmed by millions of payments settling individually into their bank account. 

So, what we're seeing now is that merchants are looking for full-service providers. They need one provider that can handle Open Banking anywhere and everywhere. They need a provider that is in the flow of funds, can execute refunds via API and provide simple batch settlement and reconciliation.

And that’s exactly where Trustly fits in. We have a vision of supporting merchants with instant settlement (on both sides) in all markets where Open Banking is regulated, using one API. 

That vision is coming into full view.

Find out more about Trustly by clicking here.

Trustly has contributed to the Open Banking Report 2021. Click here to download the report.

About Ciaran O’Malley

Ciaran is the Vice President of Partnerships, having joined Trustly as Head of Commercial Strategy in 2016. His team is responsible for Trustly’s relationships with Payment Service Providers, platforms, and other technical integrators. Alongside this, he has been involved in Open Banking in the UK and other industry initiatives such as SWIFT’s Pay Later API standard. 


About Trustly

Trustly is a global leader in Online Banking Payments. With a unique transatlantic coverage, enabling 525 million consumers banking with over 6,300 banks across Europe and North America to pay directly from their bank accounts without the need for app downloads or registration. Trustly support more than 8,100 merchants in ecommerce, travel, and financial services. 

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Keywords: Trustly, Open Banking, PSD2, Open Finance, API
Categories: Banking & Fintech
Countries: World
This article is part of category

Banking & Fintech