Open Banking is an innovation that has been around for a few years now. It refers to the sharing and exchange of data collected by banks and banking institutions on their customers with other companies.
Put like that, it sounds both simple and practical. In terms of fight against fraud, at first sight having access to an individual’s account information is an ‘ideal’ solution for certain risks where the assessment of financial soundness is essential… such as granting a credit, or even BNPL. However, let’s explore the various implications of this issue together.
The origins
Initially, this innovation did not come from banks, but from the European regulator, in response to the wishes of FinTech. The aim was to establish an innovative, modern and competitive market for payment methods and services. The PSD2 gave Open Banking its ‘green light’, since the Directive’s main aims were to open up the banking ecosystem, strengthen the security of online payments and promote innovative financial services.
Open Banking… the reality
Some banks are cautious about this ‘forced sharing’. Implementing Open Banking requires traditional banks and their internal organization to be transformed.
In 2021, 40% of the managers of some 300 banks estimated that their institution would need 5 to 10 years to achieve its Open Banking objectives. It should be noted that France is one of the countries identified as having one of the highest levels of infrastructure and maturity in Europe.
Shared data… but for what purpose?
We need to distinguish between the ‘use cases’ proposed by the various players.
For individuals :
All solutions/applications offering bank account aggregation, better money management, etc.
For businesses :
The possibilities are more numerous and varied. There are tried-and-tested use cases, and emerging ones.
In the field of payment and fight against fraud, we should bear in mind :
1. Intelligent customer integration (account and identity verification, auto-filling of forms, verification of income and solvency).
2. Instant bank payments (funding accounts, making one-off payments).
AISPs (Account Information Service Providers) can offer this service for verifying income and solvency. The lengthy and demanding admission process ensures that only highly qualified companies that are concerned about security can benefit from this status.
In terms of risk management when granting a loan or a credit, access to a banking history seems ideal. Provided that the analytical and predictive model is up to the task. There remains the question of ‘customer friction’. In the case of BNPL, which is so widespread today that it is seen as a payment convenience, getting customers to sign up to an open banking process for fractional payments still requires a fair amount of education on the part of the general public.
For instant bank payments, it is the PISPs (Payment Initiation Service Providers) that can offer this. The main advantage is that the initiated payment cannot be contested and is less costly than a bank card transaction. One issue remains: whether the ‘immediacy’ of payment can be generalized.
To sum up :
For fight against fraud, Open Banking through the prism of AISPs should be considered as part of an arsenal in which ‘financial risk’ plays an important role.
As far as the adoption of PISP is concerned, it should be seen more as a means of payment in addition to those already in existence. However, it is conceivable that changes in usage will lead to an increase in consumer acceptance of this means of payment.
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