This research by GBO, a leading corporate services company with extensive experience in innovative financial solutions, highlights the rapidly evolving world of open banking API providers.

 

GBO has examined how these providers operate, the market size of the industry, and the number of open banking API providers worldwide. This study explores how open banking API providers may affect banking and financial services in the future.

Open Banking API providers: A brief overview

Providers of open banking APIs play a crucial role in the rapidly changing financial landscape. They facilitate collaboration between banks, fintech firms, and third-party service providers, paving the way for the development of innovative financial products and services. This brief study investigates how open banking API providers operate, the industry’s market size, and the number of providers in this space.

 

How Open Banking API Suppliers Operate

Open banking API providers enable financial institutions to share data with authorized third-party providers (TPPs) in a secure and efficient manner using Application Programming Interfaces (APIs). These APIs serve as a bridge between the bank’s core systems and external applications, granting TPPs access to the required data to create value-added services and products for customers, such as account aggregation, personal financial management tools, and alternative payment options.

 

Open banking industry market dimensions

In recent years, the open banking API market has expanded significantly due to regulatory initiatives, customer demand for digital financial services, and the rise of innovative fintech solutions. In 2018, the global market for open banking was valued at approximately USD 7.29 billion and is projected to reach USD 43.15 billion by 2026, expanding at a CAGR of 24.4% over the forecast period.

 

Open Banking Providers

It is anticipated that the number of open banking API providers will increase as more countries adopt open banking regulations and financial institutions embrace API-driven collaboration. Plaid, Tink, Yodlee, TrueLayer, and Salt Edge are a few of the most prominent open banking API providers. The precise number of providers varies based on the scope and definition of open banking, as well as the regulatory climate in various countries.

Open banking API providers have emerged as key enablers of the financial industry’s digital transformation. Their ability to facilitate secure and efficient data sharing between banks and third-party providers contributes to a more innovative and competitive financial services environment. Open banking API providers are anticipated to play an increasingly significant role in shaping the future of banking as the industry continues to expand.

What is the definition of Open Banking B2B?

Open banking can be defined as a common model in which banking data is shared between two or more independent parties through APIs to provide advanced capabilities to customers and service providers.

 

Open banking is also known as “open bank data.” The definition of Open banking B2B is a new feature that allows banks to share financial information electronically, securely, and only under conditions that customers authorize, to banks and non-bank financial institutions through the use of application programming interfaces (APIs). Open banking allows the networking of accounts and data across institutions for use by consumers, financial institutions, and third-party service providers. Open banking is becoming a major source of innovation that is reshaping the whole banking sector.

Top Open Banking companies

# Name of Company Name of Services or Products Country
1 Plaid Data Aggregation and API Platform USA
2 TrueLayer Data API Platform UK
3 Yolt Personal Finance Management App UK
4 Token API Platform and Infrastructure USA
5 Tink API Platform for Banks and Fintechs Sweden
6 Figo API Platform for Banks and Fintechs Germany
7 OpenWrks API Platform for Banks and Fintechs UK
8 Finreach API Platform for Banks and Fintechs Germany
9 Finastra API Platform for Banks and Fintechs UK
10 Salt Edge Data Aggregation and API Platform Canada
11 Backbase API Platform and Infrastructure Netherlands
12 Open Bank Project API Platform and Infrastructure UK
13 Open Bank Project API Platform and Infrastructure Spain
14 Bankable API Platform for Banks and Fintechs UK
15 CallVU API Platform for Banks and Fintechs Israel
16 IbanFirst API Platform for Banks and Fintechs Belgium

Application programming interfaces (APIs) allow Third Party Providers (TPPs) to access financial data directly, which promotes the development of new and innovative services. Under open banking, banks allow access to customers’ personal and financial data and control of financial transactions to third-parties, such as online financial service providers, vendors, as well as for customers to more easily manage their own finances.

 

By means of APIs, third-party service providers can use the customer’s open data, and data about the other parties in a transaction to offer a range of financial service options, utilizing data in all participating financial institutions for dealing with new transactions and account changes on the customer’s behalf.

 

Open Banking Definition

The definition of Open banking is the practice of sharing financial information electronically, securely, and under conditions of customer approval. Application programming interfaces (APIs) allow Third Party Providers (TPPs) to access financial information efficiently, which results in better experience for consumers.

 

Open banking allows financial services customers to securely share their financial data with other financial institutions. The APIs can introduce advanced tools such as artificial intelligence (AI) to analyse consumers’ transaction data and to identify the best financial products and services for them, such as a different credit card with a lower interest rate or a savings account that would earn a higher interest rate than the current account offers.

 

For banks, the use of networked accounts helps lenders get a more accurate picture of a consumer’s financial situation and risk level in order to offer more profitable loan terms. It could also help consumers get a more accurate picture of their own finances before undertaking transactions. Open banking can also help small businesses save time through online accounting and helps better monitor customer accounts and identify security breaches sooner.

 

Banks can take advantage of this new technology to strengthen customer relationships and customer retention by better helping customers to manage their finances instead of simply facilitating transactions.

 

Open banking regulation in Europe

Open banking B2B is already a significant component of European banking regulation. Under the European Commission’s Second Payment Services Directive (PSD2), banks must allow third-parties to initiate payments on behalf of their customers. With the customer’s permission, the open banking framework gives third-party providers access to financial data, allowing them to develop fresh, cutting-edge financial products and services. The European Banking Authority (EBA) and the Second Payment Services Directive are principally in charge of overseeing open banking regulations in Europe (PSD2).

 

The PSD2 mandates that European banks give third-party providers access to account information about clients and payment initiation services via APIs as of January 1, 2018, when it went into force. This promotes competition and innovation in the banking industry by enabling fintech firms and other non-bank organizations to create new goods and services using the information and capabilities of the banks.

 

To improve the security of open banking transactions, the EBA has also released guidelines on strong customer authentication (SCA) and common and secure communication (CSC). These regulations state that banks must provide a secure communication route for third-party providers to access customer data and that all payment service providers must employ two-factor authentication for all transactions.

 

A regulatory framework for the registration and oversight of third-party service providers, known as Account Information Service Providers (AISPs) and Payment Initiation Service Providers, has also been established by the EBA (PISPs). This framework strives to guarantee that these providers have adequate capitalization, proper governance, risk management, and security protocols in place.

 

Other than the EBA and the PSD2, other nations in the European Union have their own regulatory organizations that keep an eye on the rollout of open banking in their regions. The EBA and PSD2 laws must be followed by open banking providers, and this is the responsibility of the national competent authorities (NCAs).  Open banking has been implemented across Europe, but there are still some issues that need to be resolved. Making sure that clients are fully aware of the risks and advantages of open banking and that their data is protected is one of the primary issues. In order to assure the interoperability and lower barriers to entry for new players, there is also a need for increased standardization of the technologies and protocols used for open banking.

 

In conclusion, the EBA and the PSD2 are primarily in charge of open banking regulation in Europe. In order to promote competition and innovation in the banking industry, the PSD2 mandates that European banks grant access to client account information and payment initiation services to third-party suppliers. To safeguard the security of open banking transactions, the EBA has also released standards on strong customer authentication and standard, secure communication. However, there are still issues to be resolved to guarantee that customers are informed of the risks and benefits and that their data is protected, as well as to improve interoperability and lower barriers to the adoption of open banking. Additionally, different countries in the European Union have their own regulatory bodies that oversee the implementation of open banking in their jurisdictions.

 

 

 

In the European Union, responsibility for supervision and also for registering and authorizing open banking service providers rests with each member country, through their National Competent Authorities (NCAs), They publish registers that will be used by Qualified Trust Service Providers (QTSPs) to make decisions on issuing certificates, and by financial institutions to check whether other parties are authorised.

 

Open banking regulation in UK

In the U.K., regulations issued by the Financial Conduct Authority (FCA) already require the major commercial banks to cooperate with authorized TPPs. At the moment, only the UK’s nine largest banks and building societies are required to make data available through open banking. About 50 other smaller banks and building societies have chosen to take part in open banking regulation.

 

The FCA regulations specify two types of service providers:

  • Account Information Services Provider (AISP) lets the account holder see all the account information from different bank accounts in one place online or in a mobile app. AISPs can include budgeting apps and price comparison websites offering budgeting help and product recommendations.
  • Payment Initiation Service Provider (PISP) lets account holders pay companies directly from their bank account rather than using a third-party debit or credit card such as Visa or MasterCard.

Both PISPs and AISPs need explicit consent to provide these services.

 

Open banking market size and open banking statistics

As of January 2020, there were 202 regulated providers in Europe who are engaged in open banking B2B, including about 60 in the UK alone. They provide financial apps that help manage finances and also consumer credit firms who use open banking to access account information for affordability checks and verification.

 

Open banking examples

In 2018, Banco Bilbao Vizcaya Argentaria launched its BaaS platform, Open Platform, in the USA. Open Platform utilizes APIs that allow third parties to offer customers financial products without needing to provide a full suite of banking services.
HSBC launched its Connected Money app in May 2018 in response to the UK’s open banking regulations in their attempt to place more control of financial data into the hands of consumers.

 

Connected Money allows customers to view various bank accounts as well as loans, mortgages, and credit cards, all in one place.
Barclays claims to be the first UK bank to enable account aggregation inside its mobile banking app. Its open banking feature even allows customers to view their account with other banks within Barclays’ mobile app.
PayPal and Valyuz are both products that exemplify how open banking serves the demands of modern banking.

 

What is an open banking API?

An API is a way for two computer applications to talk to each other over a network, using a common language they both understand. Open banking allows third parties to develop better personal finance management applications, by means of a banking API. An API is a set of codes and protocols that determine how different software components should interact – they essentially allow different computer applications to communicate with one another.

 

How do APIs work in banking?

APIs are essential to open banking services.
APIs are used to connect banking systems through payment networks as well as to display customers’ information on a bank’s website and via mobile apps. Through open banking, APIs are now being used to issue commands to third party providers.

 

APIs are also necessary for the functionality of Banking-as-a-Service (BaaS) – a key component of open banking. BaaS is an end-to-end process that connects fintechs and other third parties to banks’ systems directly through the use of APIs. It helps to build up banks’ offerings on top of financial providers’ regulated infrastructure.

 

 

What is open banking, and what relationship does it have to PSD2? What are the most important services and requirements introduced by PSD2? What are the various Third-Party Provider (TTP) categories? What modifications are under consideration for the revision of the PSD2 directive? What relationship does open banking have to the API economy? What are the benefits and disadvantages of open banking?

Open banking is a banking practice that grants third-party financial service providers (TTPs) access to bank account information via an application programming interface (API) provided by the bank. The Open Banking PSD2 directive was adopted by the European Parliament in October 2015 as a revision of the Payment Services Directive. The new rules were designed to encourage the development of innovative online payment methods through open banking.

 

The following are the primary services and obligations introduced by PSD2:

Strong Customer Authentication (ACS) Payment Initiation Service (PIS) Confirmation of the Availability of Funds (COF) Account Information Service (AIS) Third-Party Providers (TTPs), also known as PISPs, AISPs, and PIISPs.

The various types of TTPs are as follows:

  1. Payment Initiation Service Provider (PISP)
  2. Account Information Service Provider (AISP)
  3. Payment Instrument Issuer Service Provider (PIISP)

Changes being discussed in the revision of the PSD2 directive include obligations and rights deriving from the directive, procedures for customer authentication through the methodologies provided by the SCA, definitions and application fields of the directive, transparency of information conditions and requirements, payment institution license and payment service provider compliance, methods of access to payment systems, and how to access accounts held in a specific financial institution.

 

Open banking is a component of the API economy, which is an economic trend based on the use of APIs to create services and products using data, interfaces, and functionalities developed by other providers. New payment methods and banking products, assistance in managing one’s finances, and the ability to use non-banking services are among the benefits of open banking (such as insurance). However, there are a number of risks associated with open banking, such as the possibility of attacks by malicious individuals or hackers and privacy issues that may arise.

 

SEPA API Access Scheme

The Single Euro Payments Area (SEPA) is an EU initiative to harmonize euro payments within the EU and associated countries. SEPA aims to improve payment systems to boost economic growth and integration. The European Payment Council (EPC) created the SEPA API Access Scheme to encourage payment industry innovation and competition by allowing third-party providers to access payment accounts via APIs.

 

SEPA API:

The SEPA API Access Scheme sets technical and operational standards for third-party providers to access payment accounts via APIs. The open, fair, and secure scheme promotes payment industry innovation, competition, and consumer protection. Third-party providers need a license from their national regulatory authority to access payment accounts via APIs under the SEPA API Access Scheme. The license requires the provider to meet operational and technical standards, including customer data security.

 

Banks and other payment service providers must also provide API access to payment accounts. Third-party providers can access payment account information and initiate payment transactions on behalf of customers without logging into their bank accounts. This streamlines consumer payments.

 

SEPA API Access Scheme benefits:

SEPA API Access Scheme benefits consumers, third-party providers, and payment service providers. The scheme encourages payment industry innovation and competition, which benefits consumers with better products and lower prices. Third-party providers allow consumers to make payments without logging into their bank accounts, making the payment process easier. The scheme gives third-party providers a new way to sell payment products and services to consumers. This increases payment industry innovation and consumer choice. Third-party providers can access payment account information and initiate payments on behalf of customers, simplifying and lowering costs.

 

The scheme encourages payment service providers to innovate and compete, resulting in better products and lower prices. API access to payment accounts increases visibility and availability for payment service providers.

Conclusion:

SEPA API Access Scheme rules and standards promote payment industry innovation, competition, and consumer protection. APIs allow third-party providers to access payment accounts, simplifying the payment process and improving consumer convenience. The scheme encourages payment industry innovation and competition, which improves products and services at lower prices. The SEPA API Access Scheme is good for consumers, third-party providers, and payment service providers.

 

 

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