Open Banking: How does this concept of finance work?
Open Banking can be traced all the way to 1980, when the Deutsche Bundespost (German Federal Post Office), ran an experiment using five external computers and inviting 2000 people to make banking transactions from their homes via their TVs using specific transfer codes. That was a paradigm shift!
More than four decades later, the trend towards opening continues strongly. Today, open banking is an umbrella term that refers to legislation and technologies that allow bank customers to consent to third-party providers (TPPs) accessing their payment account information or making payments on their behalf.
But how does Open Banking work? Digital interfaces, Application Programming Interfaces (APIs), create the technical basis for it. APIs are crucial in a digital economy dominated by ecosystems and platforms. They enable the efficient scaling of digital marketplaces, but also the integration and monetization of products and data in completely new contexts.
Like Lego bricks, APIs allow products to be rethought and changed over and over again. Ultimately, they accelerate the product development of companies. New products are no longer implemented only by in-house developers, but also by external programmers.
This brings us to two more important concepts: open finance and embedded finance.
Open finance broadens the concept of open banking to savings and securities accounts, advanced payment functionalities, and other types of data or assets such as loans, mortgages, or insurance policies. It goes beyond the initial scope of PSD2-based open banking, which is why open finance APIs are considered «premium» or «value-added services» that could be eligible for remuneration in the context of a scheme.
Embedded finance is best
