Perspectives

Open banking: What you need to know

Open banking series | Issue 1

There are several challenges facing the banking sector today, including a sluggish economy and low interest environment, pressuring a banks’ ability to generate profits. Innovative technologies are raising consumer expectations and reducing barriers to entry, catalysing regulators to respond with new initiatives. A prominent example is open banking.

One of the major driving forces behind open banking is a revised EU payment services directive known by the name of PSD2. It requires banks to facilitate third parties’ access to customer payment accounts and information via application programming interfaces (APIs).

The true purpose behind the open banking initiative is to transfer the power over data and finances back into the hands of the consumer, and to stimulate a more efficient payment market. As stated in the EU legislation, “(PSD2) seeks to open up payment markets to new entrants leading to more competition, greater choice and better prices for consumers.”

There is no doubt that open banking gives customer’s greater transparency and choice when it comes to managing their finances. The increased data availability could allow companies to develop new, more tailored products, applications and services. For example, existing market players or new entrants may choose to provide customers with a single portal or platform, which helps them manage all their financial accounts with a variety of institutions. These are known as account information service providers. Alternatively, providers may establish a single platform that allows customers to compare financial products from a variety of players including incumbent banks, challenger banks or fintechs.

In the long term, open banking could usher in an era of marketplace banking. Traditional banks could lose full ownership of the customer relationship to providers of innovative applications. However, there is also opportunity for incumbent banks to use their current advantages of brand and customer base to stay ahead of the curve by developing their own innovative products and services.

It is clear that the banking landscape is changing. Let us explore open banking’s impacts and discover how banks and other providers can take full advantage of this new environment. With each new issue of this series we shall gain a deeper understanding of various facets of open banking within the context of the Maltese economy, including but not limited to:

  • An in depth analysis of the revised payment services directive (PSD2);
  • The value of data within the open banking regime;
  • The role of fintech players’; and
  • Banking strategy to compliment the open banking initiative.

Discussing the varying degrees of relevance for institutions and customers alike, allowing us to have a multifaceted grasp of one of the most influential topics within the banking and finance landscape. 

About the author

Raina Pace is a consultant within the Deloitte Malta Risk Advisory Banking team.

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