The ongoing reporting on Open Banking has led to some misconceptions about the subject. Some of the common statements on Open Banking have already proven to be a myth during the planning phase of b.Link, our new Open Banking solution. Now we are addressing others with its launch. In this article I would like to share my thoughts on seven statements about Open Banking that I keep encountering.
1. Banks Won’t Benefit from Open Banking
When reading regulations on Open Banking, such as the EU’s PSD2, you might get the impression that only third-party providers (TPPs) benefit. But end users gain as well, and therefore naturally also customer-oriented banks. Let’s use an SME as an example. Every morning the company’s managing director logs into the SME’s online banking to check payment receipts. That takes time. Using b. Link we connect the SME’s accounting software, for example KLARA.ch, directly to its bank account. Going forward, the managing director will now be able to review these payment receipts directly in the accounting software, which can even automatically trigger reminders. With this opening the bank is therefore providing its customer more time to deal with the SME’s core business.
Open Banking thus helps banks to meet their customers’ need for innovative digital services. In an environment of eroding margins, many banks are often not able to do this by themselves. Collaboration between financial institutions and innovative TPPs therefore creates a win-win-win situation. End users get a better solution; TPPs such as the accounting software provider can develop new offerings, and banks remain relevant.
And let’s not forget: collaboration works in both directions. TPPs also have data that can be interesting for banks and their processes.
2. The Most Important Thing is a Unified Standard
One of the reasons why the situation in the EU is so fragmented in terms of interfaces is the approach it took when drafting the regulation. It stipulates that banks must open, but does not specify how. As a result, multiple standards appeared in the market and TPPs must support them.
But is a single common standard worth striving for? While I understand the desire for a single solution and, in theory, it sounds reasonable, in practice it does not do justice to the complexity of the situation. A large number of actors and initiatives with very different starting points are trying to establish a solution in the market. In the short term, a variety of standards will therefore also exist in Switzerland. In fact, there are advantages of a market in which different solutions can be tried out. Some will work, others won’t. In the medium and long term, mergers and consolidation can be expected where the problems of end users are solved in the best possible manner.
I am convinced, however, that one common standard per functional area (e.g. payments) will prevail. UBS, Credit Suisse, ZKB and Neue Aargauer Bank, for example, are using the standard from b.Link for account statements and payments. That brings me to the third statement.
3. Open Banking Is Only a Question of the Interfaces
The assumption that Open Banking is a problem to solve from a technical perspective is a major misunderstanding. This is not surprising; after all, the term application programming interface (API) appears at the latest in the third line of every article on Open Banking. For me, Open Banking is primarily a strategic question that banks and TPPs must answer for each of their customer segments – for business customers as well as for private customers, for students just as much as for retirees.
At SIX, of course, we have the technical knowledge and capacity required to operate an Open Banking infrastructure reliably. But we also know the challenges facing banks regarding legal and compliance requirements. These are the aspects that, in my experience, often slow down cooperation between banks and TPPs, or even cause it to fail. b.Link is therefore far more than just a technical solution. We offer the interface; the b.Link contract sets out the legal framework, and SIX validates the TPPs as part of the admission test for b.Link.
Take Advantage of a Standardized Interface
By establishing b.Link, SIX is providing financial institutions and third party providers (e.g. of accounting software) with a platform for standardized application programming interfaces (API). Participants connected to the platform can use it to link easily and securely. They exchange payment transaction data with each other in order to offer their customers innovative solutions for account information and payment delivery.
Applications in payment transactions, however, are only the first step. b.Link, which is designed as an open platform, is gradually being expanded with new applications.
4. What Makes Life Easier for End Users Means Work for Banks.
It is true that Open Banking must be as simple as possible for end users. With b.Link, end users can connect a TPP to their bank account in three steps – completely digitally. It takes less than three minutes. But connecting the TPPs and the banks, the participants as we call them on b.Link, must be just as easy. That means, for example, that participants must sign a contract only once in order to exchange data with each other – not every time anew and bilaterally. It also allows banks to be assured that all participating TPPs are processing the sensitive data with due care and appropriate data security. TPPs must demonstrate this capability during the admission test to b.Link. Conversely, TPPs must undergo this “fitness test” only once – not for each bank separately, as is the case today. By the way, when the TPP passes the admission test and therefore validates the security of its data processing, it is also demonstrating a level of quality which can increase the end user’s trust in the TPP’s offering.
5. Open Banking Is Not Secure
An Open Banking platform must be technically secure and protect end users’ data. But also it must allow banks to fulfil their duty and care towards ensuring proper due diligence on the third parties accessing their interfaces. By joining b.Link, end users give their consent in their online banking to the processing of their data by the TPPs. It provides an overview showing whom they have currently authorized, and allows them to withdraw their consent at any time. End users also determine whether a TPP has only read rights, or whether, for example, it can also submit payment orders to online banking.
Our authorization process also provides assurance for participants, i.e. TPPs and banks, that b.Link contains only bonafide companies that, for their part, have taken all necessary security precautions. In particular, TPPs must demonstrate an appropriate level of data security for banks to be able to exchange data with them in the first place.
6. Switzerland Lags Behind
Open Banking initiatives, which are underway throughout the world, can be divided into two categories. Some initiatives have been initiated by the regulator, such as PSD2 in the EU. Others are being driven by market participants, like in the US. The UK is special in that the regulator, in addition to PSD2, specifies how banks must open up.
In Switzerland, we have the advantage that banks can become part of the solution. They shape the outcome by themselves, without the need for the regulator. While it may take a little more time to reconcile the various interests, we can also use this time to learn from other markets.
With the launch of b.Link, our job at SIX is far from finished. We are constantly adding new participants to the platform – TPPs and banks alike – to solve the chicken and egg problem that all platforms have. This also includes our ongoing work to educate people about Open Banking in the Swiss market.
At the same time, the launch of b.Link is a call to action for the banks, urging them that now is the time to get involved and help shape the solution.
7. I Cannot Afford to Participate in Open Banking
We keep the entry hurdles for b.Link as low as possible, primarily by requiring that participants pay only if they use b.Link, i.e. when they call up the interfaces (API calls). SIX earns a very small fee per API call for providing the infrastructure. The participant providing an interface, for example the bank, can in turn request payment from the user of the interface, for example the TPP. Similar to Apple and the App Store, SIX is entitled to a portion of the provider’s sales. Of course, the provider of the interfacae can also make the it available free of charge.
And as a reminder: the data can flow in both directions, from the bank to the TPP, and also from the TPP to the bank. That way TPPs can develop additional sources of revenue too.
Listen to Our Podcast on Open Banking
The content of this blog is also available as a podcast. In the first episode of the podcast series Financial Markets, Sven Siat, Head of Connectivity at SIX, explains the difference between Open Banking in the EU and b.Link, the new Swiss Open Banking solution. Financial Markets is a collaboration between Voice of FinTech and SIX.
As Head Connectivity at SIX, Sven Siat has been responsible since August 2019 for b.Link, the Swiss Open Banking platform. With more than ten years of experience in digital & banking, he has been involved in the development and launch of several innovative products and services, including UBS Paymit/TWINT, a mobile payment solution, and we.trade, a blockchain-based platform for trading orders. Before joining SIX, Sven Siat worked for UBS and Accenture Strategy. He has an MBA from the IE Business School in Madrid and a Bachelor of Applied Science in Economics.
b. Link connects financial institutions with third party providers.
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