In September 2019, PSD2 went live in the EEA. Germany has one of the most thriving fintech sectors and 800+ of their banks already offer open banking.
Open banking is banking practice that securely shares financial information such as consumer banking, transactions and other financial data to third-party financial service providers (Estevez, 2020). Sharing data is done through the use of application programming interfaces (APIs) and only with the consent of customers (The Balance, 2020). Open banking is the drive behind both innovation and competition in the financial industry (Cahill, n.d.).
PSD2 is a European Directive that regulates electronic payment services and was implemented in all EEA countries in 2016 and went live in September 2019.
Germany has one of the most thriving fintech sectors both by number of startups and the quantity of private investments (Trumm & Markull, 2020). Germany hosts 946 fintech startups which offer services mainly related to alternative payment methods, automated portfolio management, blockchain technology, crowd-funding and virtual currencies (Weidert et al., 2020). Furthermore, German incumbent banks and insurance companies have been funding fintechs. In 2020, 30 deals were made with various fintech firms (Trumm & Markull, 2020).
There is currently no regulatory sandbox in Germany and the Federal Financial Supervisory Authority states that all players entering the market must comply with regulations (Weidert et al., 2020). However, BMWi has created the Digital Hub Initiative which supports the establishment of fintechs in Germany and aims tohelp transform Germany into a leading digital centre(BMWi, 2018).
Of all German citizens using the internet, 66% use the internet for online banking, which is the EU average (DESI, 2020, 9). Additionally, on integration of digital technologies, Germany ranks 18th among EU countries (DESI, 2020, 10). Furthermore, Germany ranks 21st in the EU for digital public services (DESI, 2020, 12).
The German banking system is made up of almost 1,800 banks. The systemis unique as it is a fragmented one and it consists of three pillars; private commercial banks, public-sector banks, and cooperative banks (Schmaltz, 2020).The largest German banks include Deutsche Bank and Commerzbank.
Open banking uses an API that allows financial institutions to exchange financial data, usually through a third party-developed application (Estevez, 2020). These applications are developed by up and coming FinTech companies with the mission to improve digital banking.
To access and use the open banking APIs in Germany, you will need to acquire an account information service provider license, issued by the relevant authority. Furthermore, you will require a relevant certificate (QTSPs or eIDAS), compliant with PSD2 requirements. Alternatively, you can use an open banking platform, such as Nordigen.
The Balance. (2020, October 11). What Open Banking Is and How It Will Affect You. https://www.thebalance.com/what-is-open-banking-and-how-will-it-affect-you-4173727
BMWi. (2018, March 21).Minister Altmaier: we’re bringing start-ups and investors together. Federal Ministry For Economic Affairs And Energy. https://www.bmwi.de/Redaktion/EN/Pressemitteilungen/2018/20180321-altmaier-wir-bringen-startups-und-investoren-zusammen.html
Cahill, H. (n.d.).InvoiceFair. The Evolution of Open Banking: Connectivity breeds digital competition. https://invoicefair.com/the-evolution-of-open-banking-connectivity-breeds-digital-competition-081118/
DESI. (2020). Germany.Digital Economy and Society Index (DESI) 2020, 1-13.
Estevez, E. (2020, August 27).Open Banking. Investopedia. https://www.investopedia.com/terms/o/open-banking.asp
Schmaltz, U. (2020, December).Germany’s banking sector: Facts & Figures. EBF. https://www.ebf.eu/germany/
Trumm, C., & Markull, L. (2020).Germany FinTech Report 2020. Medici. https://gomedici.com/research-categories/germany-fintech-report-2020
Weidert, S., Gofferje, M. V., & von Rom, M. (2020, June 16).Germany: Fintech Laws and Regulations 2020. ICLG.com. https://iclg.com/practice-areas/fintech-laws-and-regulations/germany
Tink was founded in 2012, and has built one of Europe’s biggest screen-scraping / open banking platforms – they claim to have broad connectivity and services that create value out of the financial data. Tink offers their platform to banks, fintechs, and startups.
Nordigen is an authorised Account Information Service Provider. We provide free access to bank data and premium data insights, using regulated PSD2 connections.
Yapily, one of a number of fintech startups that offer an opening banking API to let enterprises, such as financial service providers and merchants, connect to banks. Founded in mid 2017 by Stefano Vaccino, Yapily’s open banking platform makes it easier for various service providers to connect to banks. Specifically, it provides a way to retrieve financial data and initiate payments via a “single secure API” that in turn connects to each supported bank’s open API.
TrueLayer is a London-based start-up that helps fintech companies verify accounts and connect their apps to bank data. TrueLayer was founded by Francesco Simoneschi and the company has offices in 5 cities across the world.