Table of Contents

• Introduction
• 1. How Does Open Banking Work Around the World?
  • 1.1. Open Banking in the U.S.
  • 1.2. Open Banking in the European Union
  • 1.3. Open Banking in Asia-Pacific
  • 1.4. Open Banking in Latin America and the Caribbean
  • 1.5. Open Banking in the Middle East and Africa
  • 1.6. Open Banking in the UK
• Conclusion

Introduction
The financial industry has witnessed a drastic shift towards openness and transparency with the emergence of open banking. Open banking allows banks and other financial institutes to easily access customers’ data through APIs, or application programming interfaces. The primary objective of open banking APIs is to enable seamless and secure data sharing between banks and other authorized third-party providers, which enhances competition and transparency in the banking service industry.

With the help of open banking, financial professionals can elevate their banks and financial institutes because it fosters innovation and competition within the industry, creates new income sources for financial entities, provides reliability and standardized data that is exchanged across many systems and platforms, and enhances the user experience.

In today’s article, we will understand the world of open banking and explore the top APIs available today.

1. How Does Open Banking Work Around the World?

Imagine having only one spot for keeping track of all of your accounts and being able to transfer funds between them with a single tap or swipe. Even better, an intelligent assistant handles your money, maximizing your rewards and savings while assisting you in avoiding overdraft costs. When you ask for a loan, you give the lender permission to review your past transactions and instantly determine your eligibility. These are precisely the experiences that open banking may facilitate by enabling users to provide various financial service providers with access.

Numerous countries worldwide have initiated programs related to open banking. But when it comes to rules, guidelines, and execution, some are more developed than others. Let us take a look at a few regions where open banking is working successfully:

1.1. Open Banking in the U.S.

The emergence of open banking in the U.S. has created an industry-led movement as it has taken many different forms in helping banks and financial institutes. It has witnessed significant profit from providing cutting-edge financial products for consumers and companies. With the help of the Financial Data Exchange, a cross-section of banks and financial services have aligned and shared data within themselves to support the adoption of an open banking framework across the U.S.

1.2. Open Banking in the European Union

The European government has encouraged competitive and innovative open banking as a mode of payment and financial service since 2019. In the EU, there is a set of laws under the Revised Payment Services Directive, otherwise known as PSD2, that aim to make payments easier, faster, and better for banking customers. Under PSD2, payment service providers in the EU have to allow customers to share their data with third-party service providers securely. According to the source, by the middle of 2021, 497 third-party providers were registered to provide open banking services in Europe.

1.3. Open Banking in Asia-Pacific

In July 2020, Australia’s Consumer Data Rights which facilitates open banking came live with the notion of open finance on savings accounts, investment accounts, and pension accounts. Regulators plan to move one step ahead by implementing rules and regulations around the banking sectors that benefit the customers and third-party service providers to access open data that is held in utility accounts, and mobile phone accounts.

There is a similar method in South Korea, where in 2019, the MyData initiative was introduced as an open banking regulation. The country was ready to let banking users get access to open data with the emergence of open banking. This implies gearing up partnerships between banks and financial institutions with API platforms.

The Monetary Authority of Singapore (MAS) and the Hong Kong Monetary Authority (HKMA) are known for their developed and forward-thinking approaches in the financial technology industry. There will be no surprise if these two countries are looking at open banking to broaden their choices and foster competition in the market. Both HKMA and MAS have a better market-driven approach, as they have not mandated banks or financial institutions to provide APIs, and these entities do not play a central role in certifying data recipients. Access to APIs will be based on bilateral agreements between the banks and those seeking access, like customers or third-party service providers.

With the introduction of the Unified Payments Interface (UPI), the National Payments Corporation of India has led a global revolution in the finance service in India. In simple terms, UPI is an open banking platform that combines various payment methods for billers, retailers, and other individuals with the ability to access numerous bank accounts through a single mobile app, giving Indian customers faster and more convenient payment experiences.

1.4. Open Banking in Latin America and the Caribbean

Brazil’s Central Bank and National Monetary Council have implemented open banking legislation, and the ability to share financial data between financial institutes has stimulated innovation in the country. With open banking, Brazilians can find new options and innovative solutions from the fintech industry, like digital payments, online lending, investments, and wealth management.

>In other parts of Latin America, the financial industry is evolving as the government is trying to make innovative solutions for the growing population. In these parts, the emergence of open banking will have huge potential for transforming how people manage their finances.

1.5. Open Banking in the Middle East and Africa

In Nigeria, open banking is operated by the Central Bank of Nigeria, which has the authority to change or add new courses for the country’s financial services industry. The objective of introducing open banking is to widen the competitive market, as the largest percentage of Nigerian citizens are unbanked. Thus, the central bank is on a mission to develop and regulate open APIs, which could be implemented as early as 2023.

Meanwhile, the Arab, which has the fastest-growing fintech industry, will soon implement open banking with European-style regulatory-driven and American-style market-led approaches.

1.6. Open Banking in the UK

Open banking in the UK has been delivered by numerous initiatives, like the Payment Services Regulations (PSRs), which were created in 2017 to provide a legally binding regulatory framework for open banking. In 2018, the Competition and Markets Authority (CMA) established the Open Banking Implementation Entity as part of a competition endeavor to invent an open banking standard for account access. This criterion is being used by the nine largest UK banks and some other banks to comply with the Payment Services Regulations. Finally, in early 2018, open banking started in the UK when the nine largest UK banks (known as the CMA9) began opening up their account data as AISPs (Account Information Service Providers).

In the same year, the PISP (Payment Initiation Services) was instituted, and more banks signed up for the open banking initiative in the UK.

Conclusion

Initiatives for open banking are still in their very early phases of development. Financial institutions, the banking industry, and regulators must all do more to increase consumer awareness and expand their reach, even within jurisdictions and sectors of different regions. It is evident that when it comes to open banking globally, there is no “one size fits all” solution. Open banking ecosystems are more established in certain nations and areas than in others. While some provide standardized APIs, others call for direct bank-to-bank contracts and links with other vendors. It will take considerably longer to establish a cross-industry data exchange ecosystem that is secure and operational.

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