PSD2 and Open Banking: the revolution of the banking and fintech sector

The concept of Open Banking stems from the introduction of PSD2, the EU initiative to contribute to a more open and collaborative financial ecosystem development.

Open Banking identifies a new way of "banking" in which banks share the financial information of their customers - based on their prior consent - with third parties (Third Party Provider – TPP) through open APIs, which enables the exchange of data between company platforms.

The European regulation further pushed the entire fintech field evolution, opening new doors in other related sectors, such as insurtech, and creating new opportunities for the application of blockchain technology in open finance.

Paradigm shift for the banking and financial system

The revolutionary aspect for the banking system concerns customer’s financial data management. As a result of the introduction of PSD2, this personal data can now be accessed by new players other than banks and not necessarily operating solely in the financial sector, always upon the customer's authorisation and in compliance with the GDPR, the General Data Protection Regulation established by the European Union, effective since May 25, 2018.

Increased competition resulting from open banking has prompted banks to redefine new business models while re-shaping their offering and commercial focus targeting the new stakeholders, partners and potential customers joining this sector. Besides, banking institutions are starting to adopt platform economy models, triggering a technology-enabled value exchange amongst people, organisations and resources thanks to technology, typical of other players such as Amazon, eBay or Uber.

What changes for the consumer with Open Banking?

This change in personal data management opens up new opportunities for banks and fintechs, but it also raises a sensitive issue for end customers, who expresses concerns about the privacy of their personal data when interacting with consumer companies (32%) and retailers (30%).¹

However, a Forrester survey² conducted at a European level reveals that 50% of consumers would be in favour of sharing some personal data for better financial services, a sign that consumers are ready to welcome the open banking revolution. In fact, new opportunities are created not only for businesses but also for end customers, who can count on a wider financial service offering, no longer provided exclusively by their bank but also by third party companies (TPPs), not necessarily directly competing with their institution. The most representative benefits of open banking for customers can be identified as:

• Management of different banks’ current accounts via the preferred banking app
  Institutions enable managing active accounts in different banks through their platforms, so that the final user, after authorising this process, can access from a single access point.
• Leveraging customised solutions
  The data exchange allowed by PSD2 enables institutions to design personalised offers and experiences for customers.
• Cost reduction
  As expected by 75% of consumers according to Capgemini³, an increased offering would translate into reduced costs. Many financial firms have taken steps in this direction, targeting a younger audience through the development of new services such as light banking.

Fabrick and Open Banking trends

The open banking landscape is rapidly developing, as confirmed by a Juniper Research report that predicts a market growth from $57 billion of 2023 to $330 billion by 2030. Europe is leading this trend with 580 billion API calls expected by 2027, about 70% of the global volume, led by the UK which will generate alone $59 billion of open banking market volume by 2027.⁴

In Europe, the number of third-party provider registrations offering services via open banking has notably increased, peaking between 2021 and 2022.⁵ First-quarter figures for 2023⁶ confirm this growth:

• Sweden records the highest number of domestic TPPs (39)
• Italy and Spain account for the highest number of joint TPPs (131), followed by Germany (130)
• France posted the highest increase in local TPPs this quarter (30), ranking third next to Poland

In this thriving open banking ecosystem, Fabrick is a leading player, with over 850 connected banks, 400 customers using the 1400+ APIs of its Open Finance platform, and over 330 million calls per month.⁷