By Geoffrey Weli-Wosu, co-founder of Voguepay.com, an online payment processing company, and founder of Domineum.io, a blockchain technology company.
Since the adoption of the Payment Services Directive 2 (PSD2) in 2015 by the EU, there has been a movement towards open banking with UK, European and Asian banks adopting the open data initiative. Open banking implies free access to customers’ personal data through an Application Programming Interface (API). This access can facilitate automatization of payments and verification of credit worthiness as an example.
On the one hand, open banking has a number of advantages such as it facilitates competition and fair pricing, it allows customers to get better deals, it reduces barriers for financial services and most importantly it gives the control of the data to customers who provided the data. John Broxis, managing director of Preta/Open Banking Europe, says: “With this work, we are pleased to continue the mission of Open Banking Europe to describe and standardise Open Banking practices in Europe following the implementation of PSD2.”
However, conversely, there are also risks and disadvantages of open banking. First, since it applies only to the financial sector, it creates unequal benefits and unfair practices where non-financial companies that are not subject to open data initiative can benefit from open banking without revealing their private data in return. This would create information asymmetries. Second, the risk of misuse of personal data will rise and this could lead to distabilisation of the banking industry. Third, there are no finalised controls, regulations and rules of the game. Hence, any disputes will be difficult to resolve. Privacy and security aspects of open banking require more attention from regulators.
Once these challenges are overcome, opening banking can become the next wave of innovation in the financial industry. Simon Paris, CEO at Finastra says: “It’s encouraging to see Open Banking maturing on a global scale, but it’s still seen by many to be in its teenage years, with scope for creating even greater opportunities. We believe it will be the first step towards open finance which will see the next wave of innovation in financial services being created.”
Geoffrey Weli-Wosu is an observer of fintech’s expanding horizons and co-founder of Voguepay.com, the online payment processing Company. He is also the founder of Domineum.io, a blockchain company headquartered in Level 39, London and making strides in African markets.