The key to unlocking Open Banking innovation for pan-European expansion

The internet is meant to encourage scalability and a global marketplace.  

But for all the successes, many businesses still struggle to expand internationally within the EU, due to things like different regulations, payment methods, and so on. Even today, according to research by Stripe over half of the European businesses that already sell to at least one other European market say this is a challenge.  

Open Banking, via PSD2 regulations, is one giant step forward.  

By now you are probably familiar with the concept of Open Banking, but to briefly recap, the principle is that banks must share account data with third parties, under strict regulations. Account Information Services (AIS) as they are known, offer a world of possibilities for personalised offers, smart decisioning, cross- and upsell, improving internal processes, and innovating your business.  

For example, fintechs such as personal finance apps can use AIS to prompt users to invest, save, pay, and otherwise manage their wealth more effectively. Lenders can make fast and accurate decisions about how much an applicant can borrow, while speeding up the application process and improving the customer experience. Leasing companies can rapidly decide if an applicant can afford to lease something, and accounting software providers can automate bookkeeping processes for their clients.  

And Open Banking is not limited to AIS. Open Banking payments has the potential to become a true EU and UK standard, offering the fastest, cheapest, and most convenient way to pay in any market and across borders.  

But for all this promise, few businesses are adopting a pan-European strategy for using Open Banking today.  

The challenge: there are lots of banks, and bank APIs are not very friendly  The vision of Open Banking is promising – even transformational. But the reality is more complex, for three key reasons.  

1. Banks have different connection specifications and requirements. While banks are mandated to open accounts to share data and initiate payments, they are not mandated to do it within strict specifications. Most banks have different API specifications or requirements, including differences in payment flows, fields, statuses, and IDs.  

2. There are a number of API standards used for Open Banking in Europe. 

In 2020 there were almost 6,000 banks operating in Europe. While they are mandated to offer connections via Open Banking in the UK and PSD2 in the EU, the standards are not uniform across each country. 

3. You need to monitor connections and maintain bank communication. 

It is imperative to constantly monitor your connections once they are built, for scheduled and unscheduled downtime, and updates and improvements made by the bank. It is also necessary to maintain communication with the bank to be aware of these upcoming changes and downtime as much as possible. 

This is important not just to maintain connectivity, but also to proactively communicate to customers if a connection is down. 

And you need to be licensed, too.

In addition to building and maintaining APIs, you must either also be licensed under PSD2 in the EU and/or by the FCA in the UK. 

For both licenses, there are long application processes (nine months+), and operational changes required. Some things organisations need to look at include Know Your Customer (KYC) compliance, security risk management, anti-money laundering and combating the financing of terrorism, and so on. 

Can third-party providers solve these challenges? 

The points above make a clear case for why businesses should partner with a third-party provider (TPP) specialised in building and maintaining open banking connections. And indeed, there has been a well-documented explosion in the number of startups offering Open Banking/PSD2 connections in different European markets over the past several years. 

However, it also seems that the huge number of banks and variety in API standards have meant that many TPPs have chosen to focus on single, or only a few, markets. And still, other startups are backed by payments networks which may - for certain businesses - present questions over where their real priorities and interests lie. So, although there are a number of innovative TPPs that can solve many challenges around open banking, only a few can offer a truly independent, pan-European solution.  

Questions to ask your prospective Open Banking TPP 

Every business has different needs. Although expanding into new markets can be very attractive, not every business needs or wants to do this. But for those businesses that are already operating cross-border, or are planning to do so in the future, it is worth asking your prospective TPP about the following: 

Scaling Open Banking innovation across current and planned European markets can help you gain a competitive edge, so choosing the right partner for pan-European expansion is critical to ensure you maximise speed and scalability. By asking the right questions, you are setting yourself up for long-term success.  

About Dan Mines 

Dan is the Chief Product Officer at Yolt, a provider of Open Banking APIs and services licensed in the UK and EU. In this role, he is leading the development of open banking payments, pan-European API connections, and front-end products. Previously, he was Chief Information Officer at Admiral Financial Services and also worked extensively in Price Comparison and Insurance sectors. 

About Yolt  

Yolt is a provider of pan-European Open Banking APIs and solutions - building, managing, and maintaining AIS and PIS connections for top financial institutions and ambitious tech businesses. In January 2018, we became the first ever Third-Party Provider to successfully make an Open Banking API call, and by 2020, we had made over one billion API calls. Yolt now offers API connections to 600 banks across Europe.