The Four “Os” of Open Banking

While I was studying computer science, the notion of open source was much argued over. Our university professors found the idea playful but approached it from an old-school way where they could not fully grasp how it would fit into a business landscape. We students, on the other hand, found the open source movement empowering. Not only did it provide us with reliable and free tools, it also gave us the chance of contributing to a global community from our small classroom in Algeria.

Those heated open source debates are not very different from the Open Banking discussions which I have today in Europe and globally.And, just as open source has become commonplace, I’m convinced that Open Banking will become ubiquitous in the financial services sector in the future.

What is Open Banking?

Open Banking is a decentralized software development model that allows consumers and companies to share their banking information (transaction history, account balance, etc.) with third party service providers and app developers using open Application Programming Interfaces (APIs). Naturally, this only takes place with the end customer's prior authorization.

Instead of only having access to an online banking interface of your bank, Open Banking enables customers to choose from a range of applications developed by third party providers. These apps can be tailored to specific individual preferences and requirements. For instance, a small business owner might choose to use an online accounting service connected to her bank account for reconciling invoices, whereas a visually-impaired person would use a voice-assisted device to consult her balance. Additionally, Open Banking has the ability to be able to adjust more quickly to regulatory demands. Through continuous integration and continuous deployment, Open Banking allows financial institutions the ability to build flexible and agile apps that can meet the often ever-changing regulatory demands.

Why Open Banking?

Often seen as a lever for driving innovation and enabling appropriate response to evolving customer needs, Open Banking has so far been adopted or is under discussion by regulators in more than 47 countries worldwide. For instance, in the 28 countries of the European Union, it is now mandatory to expose APIs under the EU-wide PSD2 directive.  

In addition to being able to comply with regulations, financial institutions can benefit from Open Banking in two areas:

1. Capturing external opportunities by accelerating and scaling innovation in conjunction with external partnerships. Some of these partnerships can lead to faster time to market for new product offerings, better customer experiences and may create new revenue streams.
2. Boosting internal efficiency by digitizing and rethinking existing processes, allowing Financial Institutions to leverage an ecosystem of third parties and experts. This in turn may help to rationalise and drive down costs and brings more agility and flexibility.

In a growing market it’s even more important for financial institutions to remain innovative. Big tech companies, hyper focused fintech startups and other non-traditional financial institutions are bringing new ideas and changing expectations. As banks are also becoming a technology companies, it is important to get ahead of the curve.

So what exactly are the “four Os” of Open Banking?

Those committed to an open future still have a long way to go. Whether the challenge is designing open APIs or building an ecosystem of third party providers committed to those APIs, embarking on Open Banking can be tricky.

We’ve identified four principles that should sustain successful Open Banking initiatives. These have become a guiding definition for what Open Banking means.  These are called the Four Os of Open Banking:

• Open Innovation: the aim of open banking is to drive innovation. Financial Institutions exposing APIs should think from the outside-in and put in place an experience and a culture which is welcoming and open, one which truly fosters creativity and which doesn’t discriminate against the smaller players. We’ve seen Open Banking-as-a-Compliance projects fail because they do not take the perspective of the third party providers into account.   
• Open Standard: adopting open standards is a cure for the Not-Invented-Here syndrome. Together with our vibrant global fintech developer community of more than 11,000 developers, OBP helped 40 financial institutions to securely implement APIs, comply with local these standards and build thriving ecosystem.It allows financial institutions to be able to save time and to produce better APIs by leveraging industry best practices and accelerate their open banking journey.
• Open APIs: Open APIs do not mean public APIs. APIs can be made open to third parties in a controlled manner, and third parties should be able to use the bank’s APIs without being forced to jump through multiple hoops. To support experimentation, many of our customers adopt TESOBE sandbox environments, hackathon events and other similar experimentation formats.
• Open Source: choosing enterprise open source - like Red Hat - can mean having no vendor lock-in, and maintaining tight control over the building blocks of your open banking initiative. The use and integration of open source components for open banking will enable financial institutions to innovate and to develop at their own speed.

Conclusion

Whenever we get stuck, we try to reflect on these principles. They are simple yet powerful rules for expediting your Open Banking initiative, and we aim to embody them in our Open Bank Project software.

Recently we’ve augmented the Open Bank Project with some Red Hat software solutions such as Red Hat 3scale for API management, Red Hat Fuse for integration with bank legacy and Red Hat OpenShift for hybrid deployment. This combination of open source tools can provide even more control and bring the four Os of Open Banking to the bank’s door. It also enables professionals in the industry to bring their ideas to life faster and students in their classroom to create and argue about the open nature of the financial services of tomorrow.

About the Author

Ismail Chaib is the Chief Operating Officer at TESOBE / the Open Bank Project, the leading open source API solution for Financial Institutions. Ismail graduated from the University of Nice, France with a Master’s Degree in IT. Passionate about the role fintech can play in society, he is a vocal advocate of Open Banking. He appeared on the Bank Innovation list of 44 Innovators to watch in fintech. Originally from Algeria, he’s based in Berlin, Germany.