Open Banking : Banks = Open Source : Software

Open banking is on the way and it can do great things, we just have to look at the lessons of open source to see why.

Thirty Six years ago, when I started my journey in the IT sector as a software programmer, I wrote a lot of software in various fields. Every time, the biggest concern I and my colleagues had was how to hide our source code.

Then came the 90s and things changed. All of a sudden, I started to hear about a new trend: open your code and share your source.My reaction was along the lines of: What? Share my source? No way man!

It was undoubtedly a new way of thinking: if you open your software source, you can let others participate in your project and help you to build better software. You can benefit from the community, and you can create an ecosystem.

I might have been skeptical at first but Open Source teaches us an important lesson: sharing is good. When you open things up to other people, good things happen. We only have to look at what happened with Unix and what is happening now with Android to see why.

In the open source world, we reflect ourselves, our community needs as humans, our sociality and our will to share a bit of us with other people.

Arise open banking

Today we’re seeing another development, the Open Banking initiative which is telling banks: “Hey, you need to open your IT systems and your data to third parties”. I think a lot of people in the banks are thinking the same as me in 90s: No — Way — Man!

It’s not uncommon. Indeed, whenever you do something disruptive, people will be suspicious at first. It’s only natural.

So, is Open Banking as positive as Open Source? Before I get into that, let’s take a look at what Open Banking is.

So, what is Open Banking?

In a traditional online interaction between banks and customers, the customers use the software provided by the banks; they login to the online banking platform or use an app from the bank. Account data is stored in the IT system maintained by the bank.

This is the classical way most of us will interact online with a bank.

Nowadays, thanks to digital diffusion, our world is changing and we will use even more services from third parties. Those services need to be paid for and this can only happen by using credit cards or services that allow us to charge directly to our bank accounts (for example PayPal).

The goal of Open Banking is to open up access to our bank accounts and data to third parties while maintaining the same security we are used to. This way we can access many different services and control who has access to what.

All this happens thanks to something that we call an Application Program Interface or API; a sort of gate opened by banks to other software which allows it to use and interact with our data.

As the image shows, we will have some software that will sit in the middle between us and our banks.

Open Banking has many advantages. It is, in many ways, a democratization of our bank accounts. We open it up to other people, but we retain control. Neither they or our bank can use our account. Moreover, we can simplify things by having a single point of management for all our different accounts using an accounts aggregator mechanism.

We can benefit from features such as instant payments to harness more from the current level of technology as well as greater visibility of our finances which helps us manage our money more effectively.

These are just a few of the benefits we can hope to see from the world of Open Banking. As it becomes increasingly popular, we can expect more.

What the situation around the world is?

Image thanks to Epiphany Srl — Open Banking Solution

As you can see in this map, adoption of Open Banking around the world is pretty mixed.

Many countries have created the regulations, many others are on the way and some are still lagging behind. Europe is out in front, Canada is not far behind and others will be following.

In conclusion, I really hope everyone in the world really embraces Open Banking because I really think that we can benefit from its adoption.

Just as with Open Source, Open Banking will foster a new wave of innovation, transparency, effectiveness, better customer experience and, of course, new sources of revenue for banks.

Last but not least I want to say a quick word of thanks to Epiphany Srl for all their help with this research. I’m collaborating with them on real life applications of Open Banking and PSD2 compliance.

#OpenBanking #PSD2 #Finserv #Fintech #EpiphanyInfluencer