What is open banking? As with most things financial, it can be a complicated topic. But boiled down it’s about giving a bank account holder the ability to securely grant a third-party service provider (such as a financial planning app) access to their account details and payment functions. Recently, access has been cobbled together by services using risky “screen-scraping” practices that open web pages and simply copy all the text and numbers they find there. This approach creates security risks for both customers and financial institutions and threatens the trust that our financial system relies upon. Open banking would address this concern by utilizing modern API-based access methods, strong authentication, clear consent and the encryption of all information that should be kept private.
Watch the video above to learn more about open banking and the first major jurisdiction to implement it: the European Union. Over a decade ago, the EU adopted its first Payment Services Directive (PSD) with the intention of creating an EU-wide payments area. A follow-up directive, PSD2, came into force at the beginning of 2018, granting to third-party service providers limited and consent-based access to the bank accounts of their users. In studying the EU’s use of open banking, we hope to start a thoughtful conversation on how open banking might create new areas of opportunity—or new challenges.
Learn how the Innovation Partnerships team at Interac is working on open banking.