If you were to look at it from an outside point of view, the main factor behind innovation is none other than initiative. Determined and ambitious individuals, as well as businesses, are the ones driving the world forward and implementing change. The world of Fintech and open banking is no exception. And for most of the world, an open banking initiative means more opportunities, better financial services as well as overall innovation!
open banking initiatives are strides made by the public and the private sectors to promote or encourage the emergence of open banking businesses as well as more lucrative micro and macroeconomic conditions for the development of open banking services.
There are such initiatives almost anywhere in the world. Within the borders of Europe, initiatives are the strongest and most notable as well as impactful. Both private and public market participants are heavily involved in making open banking more prominent and approachable all over the European continent, where it’s already quite solidly established.
EU and the United Kingdom have quite different end-visions in mind. Although they have adopted a lot of the same measures (PSD2 and UK open banking Standard, respectively), the difference between the directions is quite obvious. Within the EU alone, there’s a lot of alternative trends and courses. These are influenced by the variety of individual companies or groups that head the open banking initiatives.
But we can mostly divide these initiatives into two major categories – Free Market and Regulated. Free market approach or free-market open banking Initiative is present in locations where there isn’t a regulatory regime and a standardized system for open banking processes. Most Asian countries are prime examples where the private sector is trying to implement open banking services into the world of finance without any major presence of regulations or strict rules. The primary advantages of this model are continuous innovation and cutting-edge tech, unrestricted by regulations that are sometimes unnecessarily complicated and can be out of touch, if not done right. The threats and risks of such an initiative are outlining the rights of consumers and customers.
On the other end of the spectrum, there’s the Regulated approach. Apart from the EU and the United Kingdom, Australia and Hong Kong are the only two other noteworthy places following the same approach. Hong Kong was amongst the first ones to release an Open API Framework for open API implementation for financial institutions but since then, other regions have made more significant strides forward but this financial hub is still a great example of a working regulatory initiative for open banking.
open banking initiatives have their fair share of obstacles. As with every initiative and push for innovation, there are both technical and regulatory obstacles that encourage ingenuity from businesses and also can delay the implementation of some innovations.
In the EU, open banking initiatives must be compliant with the strict data protection laws as per EU GDPR and PSD2. There are significant requirements for developers of APIs and fintech solutions if they want to be licensed. There is also a divide between the expectations of banks, credit unions, and TPPs. Overcoming them and finding compromises amidst the strict regulations is the only way to move forward in these current market conditions. Reciprocity is the main vehicle driving these initiatives forward in markets with a regulatory approach at the moment.
Regulators have, for the most part, done everything in order to promote healthy competition in this sector. The EU GDPR is viewed internationally as an etalon for how data, with regards to financial account information, should be protected. The European Union prioritizes security and transparency above everything else which promotes and encourages the most technologically advanced service providers and most innovative startups rise to the top, creating suitable market conditions for the emergence of high-quality open banking services.
For tech companies looking to take advantage of opportunities but waiting to see more involvement from the regulators, the road is much more difficult. They have to lobby and convince officials that open banking Initiatives in Europe and elsewhere are good examples of how it can benefit their local consumers and make the financial sector more transparent. This is especially relevant to the United States market where the development of working data protection laws and the relevant legislature is still in the very early stages.
It’s always difficult to predict what the future holds for us. The fact of the matter is that market analysts say that future initiatives will be greatly influenced by a variety of different factors. It’s not only how banks and TPPs communicate and collaborate with one another but also how are they able to maximize the room for technological improvement, left by the data protection laws.
Some countries are looking to build international payment and financial service bridges whilst others want to implement good open banking practice to automate more and more financial operations.
However, one thing is clear. In an emerging and growing market, it should be expected that new players will be sprouting up by the dozens. The UK alone, issues more than 30 new licenses for open banking firms each year, meaning that companies with new ideas and ambitious goals should continue to show initiative for innovation and to move away from legacy financial services.
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