Open banking is still considered an emerging technology, but each country is taking a different approach to this opportunity.
While it’s not the only emerging technology that could have a positive impact on your business, it’s something to keep in mind when assessing what could give you crucial leverage across different global markets.
We’ve assessed some of the largest global leasing markets and looked at the state of Open Banking today. What’s developing in your region?
United Kingdom: More than two dozen open banking services available
Open Banking in the UK dates back to 2016-2019 when UK and European authorities started to encourage open banking to boost competition. Since then, the UK government has cleared the path for open banking by mandating banks, including Barclays, Lloyds Banking Group, Santander, Danske, HSBC, RBS, Nationwide, and AIBG to “allow certain information to be shared securely online with other regulated companies through Open Banking.”
The best-known UK Open Banking service providers are listed on the Open Banking regulated providers website. 9 Spokes UK is a service designed to increase small business loyalty by creating a single digital dashboard for business customers. Apps such as Bippit, built to help customers with financial planning and reaching their financial goals, are common, particularly amongst millennials.
Germany: The early leader
As the world’s fourth-largest economy, the German approach to open banking is impressive.
Germany’s support for open banking can be traced back to both national and European developments. At the European level, the PSD2 (the Payment Services Directive) regulation required banks to open their data to third parties. In Germany, Commerzbank and Deutsche Bank have completed extensive work to enable open banking technically through application programming interfaces (APIs).
APIs allow other companies to access the provider’s data and resources automatically. For example, Deutsche Bank has an API for business customers that lets “Enterprise Resource Planning (ERP) systems link directly to your business bank account.” That means that business bank customers can download their bank account data directly from Deutsche Bank without a manual login to the bank website.
In addition, there are “instant payments” APIs available with Norisbank, DB Corporate Bank (SME), and Deutsche Bank. TrueLayer, a technology company, expanded into Germany in 2019 from its existing UK market, helps banks verify identity, access financial data, and make payments.
Australia launched in 2020
Australia open banking has been made possible in 2020, thanks to the Consumer Data Right Act. The legislation will be implemented gradually to allow companies to upgrade their systems and processes accordingly. Australia took around three years to move from proposing open banking conceptually in 2017 to passing legislation.
The Australian approach to open banking is somewhat similar to British policy. Australia required four of the country’s largest banks – NZ, NAB, Westpac, and Commonwealth Bank (CommBank) – to take the lead in implementing open banking technology. These four banks account for more than 90% of the country’s deposit base, which will significantly affect the banking industry.
Australian open banking technology and services start with data-based services since those have been permitted since mid-2020. Australia approved ten companies to participate in open banking in 2020, including Intuit Australia (i.e., instant transfer of bank data to Intuit accounting software), Quicka (i.e., payments), and Verifier Australia (identity verification).
Australian open banking is less than twelve months old, so there is still time to earn a first-mover advantage. Note that Australia has regulatory requirements concerning who may receive data shared under the CDR regime.
Japan permits open banking with no hard requirements
Unlike Europe and Australia, the Japanese approach to open banking is different. As of early 2021, there is no mandatory requirement for banks to share data. Instead, open banking arrangements are arranged between banks and third parties as they each see fit.
The major open banking providers in Japan include MoneyForward (i.e., a personal financial management service), Zaim (i.e., a bookkeeping app), MoneyTree (i.e., a personal financial management service), and Nest Egg (i.e., automated personal savings).
United States open banking pioneered by large banks
Home to some of the world’s largest FinTech companies, like PayPal, SoFi, Stripe, and Ripple, open banking in the US is unfolding gradually. Unlike several other countries, US financial regulators have taken a “hands-off” approach to open banking. For example, the Australian government has clear regulations and expectations for open banking that are more difficult to see in the US.
Despite the lack of government clarity, the Federal Reserve Bank of Boston points out that open banking has been active in the US since 2017. For example, Wells Fargo started a data-sharing program with Intuit to help business customers, whilst BBVA launched its “BaaS” (Banking-As-A-Service) in 2018, enabling third-parties to offer some financial products. Citibank offers seven open banking options covering services such as pay with points, accounts, and onboarding. Bank of America offers three open banking options: account information, payment initiation, and confirmation of funds.
Apps for managing personal finances and achieving savings goals, such as Cleo, are also available, leveraging open banking to provide services such as an algorithmic autosaving feature, payday advances, and smart budgeting. Such applications, Cleo in particular, are also gaining popularity in areas where open banking is more established, such as in the UK.
For a guide to open banking services in the US and elsewhere, visit the Open Banking Tracker.
What to do if open banking isn’t available in your market
Your short term opportunities for growth with open banking vary. In advanced jurisdictions like the UK, Germany, and Australia, large banks have pioneered open banking technology with significant government regulatory oversight. To remain competitive, embracing open banking in these markets should be considered a strategic priority.
In other countries like Japan and the United States, open banking is still emerging, and there is also greater uncertainty about regulatory matters. Nonetheless, large banks have led the way with new offerings to help business customers and provide account information to customers.
Fortunately, open banking is not your only option to improve lending efficiency and customer experience. If you operate in less mature open banking markets, then you may want to consider how new developing technologies could improve your business and customer experience.
CALMS Customer Direct is our digital solution for nurturing customers through the finance process. It speeds up verification, ID checks and customer service by empowering customers to complete and monitor their finance applications when and where they wish. This innovation can provide immediate improvements to the customer experience as well as streamlining the end-to-end journey.