Open banking guide:
Key element to
Consider before
Choosing a provider
Open Banking became popular in business-to-consumer (B2C) when Personal Finance Management (PFM) tools emerged as powerful allies, enabling users to sync multiple bank accounts and manage their finances seamlessly. A few years later, the finance landscape evolved and demanded business-to-business (B2B) solutions to meet enterprise needs, including cash management, treasury, and invoicing.
Following these trends, Open Banking providers segmented and specialized their operations in B2B or B2C. B2C providers concentrated on delivering solutions to consumers. The need to scale lead to industry consolidation. In 2021, international card schemes acquired B2C market leaders like Visa with Tink and Mastercard with Aiia.
Similarly, the B2B sector consolidated into fewer and stronger players. In 2017, Isabel Group acquired Ponto to strengthen its position as a market reference in the financial and banking ecosystem in Belgium and Europe. Despite these differences, both B2B and B2C use APIs similarly by leveraging the European regulation known as the second Payment Services Directive (PSD2).
Open banking facilitates innovation and streamlines financial tasks
Traditionally, banks exchanged data with customers, third parties and software providers using specific formats, for example Coda in Belgium and EBICS in France. This process was labor-intensive and confined to specific regions, with each country using a different format. When auditors requested data synchronization between banks and companies, they received Excel documents. These files had to be manually checked on a regular basis.
Luckily things have changed. Software solutions benefit from Open Banking APIs to provide their users updated financial data, and standardized European information. This situation benefits both software applications and users alike. On the one hand, real-time financial data enables users to make quick and more accurate decisions. On the other hand, user-friendly APIs allow software applications to offer a more customer-centric and dynamic ecosystem.
These Open Banking APIs offer Account Information Services (AIS) and Payment Initiation Services (PIS). With AIS, software applications automatically retrieve customer account data and provide tools for treasury, invoices, and finance management. With PIS, users can make payments directly from the application or send links to collect unpaid invoices. Further, Open Banking payments are cheaper and faster than other e-payments.
The impact of data security and privacy regulations
Banks were initially hesitant to share financial data. However, regulatory changes such as PSD2 in Europe compelled them to provide their APIs to third-party providers. Since then, new trends and the covid pandemic removed adoption hurdles in both the B2B and B2C sectors. However, there is still work to be done to increase awareness and understanding of open banking benefits.
Looking to the future, open banking holds significant promise with continuous advancements in user adoption and technology. However, new challenges lie ahead. For example, data security and privacy regulations will require constant vigilance from service providers and users.
Open banking has proven to be a game-changer, boosting efficiency for both B2B and B2C sectors. The use of APIs and standardized data has streamlined financial tasks, fueling innovation and empowering users to automate processes and make informed decisions moving towards the future of open finance.
Watch Our Expert Interview and Discover How Open Banking Drives Innovation for Companies: