Open banking regulations came into force across Europe in 2019 and it was a pivotal step towards democratising access to financial data. With a 450% growth in APIs from 2019 to 2020, the adoption rate has followed a strong positive trend. Open banking has de jure been free in the UK since 2018 and in the rest of Europe since 2019. In practice, access to the same APIs ends up not being free at all for the final consumer.
How open banking works
In general, open banking means customers can gain access to new financial services and products from regulated third party providers. This is made possible by banks who build APIs that follow PSD2 standards and third party providers who get special licenses to connect to them. Without needing to disclose their banking credentials details, the third party providers ask customers for consent to connect to their bank accounts through the regulated API and access the data needed for the service. The customer is always in control of which transaction data is accessed and is able to stop the access at any time.
Free open banking
PSD2 regulations mandate that banks provide free access to their API. Open banking has already made it easier for new market entrants and third party providers to gain access to this new market, improve their product offerings, and increase competition. Free open banking allows more developers and businesses to build new fintech services that compete with large retail banks, without any price barrier.
European open banking company Nordigen, has helped this process further by aggregating bank APIs into a single endpoint and reducing the friction for developers. They’re also the only open banking company in Europe that provides free access to banking APIs, as most TTPs have decided to charge for this connection they get for free from the bank.
Competitive markets breed innovation, which ensures customers' needs are met to the highest level by forcing competitors to offer the best product at the best price. And the list of open banking innovations is endless. From offering ways to reduce debt to facilitating better credit scores, access to open banking data has already resulted in a range of new products and services. Free open banking in Europe is essential for the continued growth and success of the open banking market.
Not everyone is a fan
So, who’s against free open banking? Banks are. In essence, banks have to take on the costs of building compliant APIs. Some banks argue that open banking adoption is too slow and that putting a paywall around the data provided by APIs would speed it up by creating additional incentive. In reality, this model only adds complexity to the process and will breed the same issues that the United States is currently undergoing with its banks, where companies that act as middlemen are required just to make open banking function.
What’s next?
Open finance is the next iteration of open banking. Open finance gives customers even more control over their financial data and allows them to securely share additional data about themselves with services besides their banks. Open banking account data has become a commodity and the hope for open finance is that it will be free in Europe, just as open banking is currently in the UK and Europe.
Rolands Mesters, CEO and Co-founder of Nordigen
