3/8/2022 17:15

"The Revolution has just begun". The new world of Open Banking in brief

"Global banking and tax information management has arrived." The words are from the CEO of nBanks. In a presentation during the Angola Innovation Summit, last July 29th, Orlando Costa spoke about open banking and summarized advantages and functionalities of this solution. And stressed: "the revolution has just begun".

One sentence is enough to explain the evolution of Open Banking. For Orlando Costa, we have gone from an "ego" system to an ecosystem of financial services. It's a play on words to illustrate the transition from a closed and defensive business model to a more open environment, based on cooperation and the aggregation of banking systems.

One system, four functionalities

It sounds like something complex, but this transformation is easy to understand through four big key ideas, according to the cofounder of nBanks.

First, it tells us, there is a "breakdown of data monopolization." That is, bank customer data "is no longer instantiated in just one entity. Customers can now, for example, aggregate the banking information of several accounts on a single platform - bank or non-bank - and thus "coexist in a shared, secure and properly authorized data environment.

This particularity leads us to the following two aspects, as the manager mentions: on one hand, "the ease in aggregating information and initiating payments"; on the other hand, the generation of "controlled environments of banking information". Yes, there is disruption, but "everything has to be regulated and properly supervised", Orlando Costa emphasizes.

Finally, Open Banking opens up the "banking space for banking entities and also for so-called fintechs, the technology companies that provide financial services.

It was, in fact, from a fintechs movement in the UK that Open Banking was born. It started with the simple facilitation of primary tools for handling bank files, in 2009. The trend is now taking hold all over the world and has already been consolidated through two payment directives to regulate the service - the Payment Services Directives (PSD) 1 and 2. Today, there is even talk of "World Wide Open Banking".

Gains for banks and customers

With this paradigm shift, who wins most is the client. "You have greater freedom of choice, you aggregate information, you can compare solutions and decide based on much more information," he summarizes. All because he can "start sharing a relationship with several entities that will give him information competences to make the best choice.

Now, the question is: "What about banking? The truth is one: there has been a forced transformation, but it was for the best: "This movement has forced banking entities to modernize", being able, among other measures, to establish new, more innovative intra-bank applications. According to Orlando, the banks themselves see in fintechs the role of "industry innovators", "solution providers" and "digital accelerators".

The advantages multiply, from the emergence of new sources of revenue, to the reduction of operating costs or the high connectivity between several players. It's "cooptivity" in action, as Orlando Costa tells us, alluding to the fusion between "cooperation" and "competitiveness" in "presenting new solutions" to the client. Strictly speaking, it is easy to understand that we are talking about an opportunity, not a threat.

The key players in Open Banking

To realize the Open Banking model, Orlando Costa highlights two protagonists. On one side, we have the so-called "PISP", the Payment Initiation Service Providers. These are the entities that "facilitate and accelerate the connection between the merchant and the client in the bank payment.

On the other side, there are the "AISPs", Account Information Service Providers, which allow the quality of the aggregation of banking information in the same place. nBanks' services are an example of this type of service, the CEO says. "A customer, instead of having to open and close several homebanking sessions to see balances and transactions in 10 or 20 accounts, for example, can, in a single platform, aggregate all this data.

Use cases: how does it work in practice?

There are several uses - and benefits too - that come with joining an open banking solution. And they involve much more than just payments. Let's look at some concrete examples.

Think about the financial management of a company. In an open banking platform, updated information can easily be shared with accounting or control teams. The employees themselves can integrate into the system the expenses they have in hand "and, in this way, the treasury can access all that information in real time", he adds.  

The aggregation of fiscal, tax, and various corporate responsibility information is also a plus, especially considering that these platforms provide access to collaborative agendas.

Not least, these integrations will also allow better bank risk perception to leverage better trading.

From saving time, to quality of information, to speeding up bank reconciliations or operational efficiency, the advantages are many and result in more efficient companies. For accountants, an open banking solution also brings gains.

If you haven't had a chance to see Orlando Costa's speech at the Angola Innovation Summit yet, go to this video and watch the session in detail between 3:53:44 to 4:10:46.