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

The concept of Open Banking, explained as a framework which now moulds and enables the finance landscape, stems from the introduction of PSD2 in 2018, the EU initiative to contribute to a more open and collaborative financial ecosystem development, soon to be updated with the latest PSD3 proposal.

Since 2018, Open Banking has opened new frontiers in terms of Open Finance and what can be achieved with applications of financial solutions in non-financial flows and processes, and by leveraging financial data to improve business products and solutions while bettering the customer experience.

Let’s dive into what Open Banking refers to and the applications and benefits for companies and consumers.

From Open Banking to Open Finance

Starting from the definition of Open Banking, it identifies a 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 meaning of APIs in the context of Open Banking is fundamental to understand as it is an essential element of the financial process, topic which can be further explored in our article on the topic.

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

PSD2 and Open Banking regulations

In fact, when Open Banking was implemented, the revolutionary aspect for the banking system concerned customer’s financial data management. As a result of the introduction of the new regulation and PSD2 Open Banking requirements, 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 opportunities 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 started adopting 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.

Therefore, the benefits of Open Banking have influenced the rest of the financial ecosystem, as Open Finance broadens the scope of Open Banking, expanding its principles to encompass a wider financial network, allowing companies to leverage financial data across financial and non-financial value chains and expanding their offer while improving the customer journey. Open Finance also allows consumers to share their data across the broader financial ecosystem, by giving individuals the freedom to decide how to utilize their financial accounts and data for purposes such as payments, budgeting, and investments.

What changed 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 are in favour of sharing some personal data for better financial services, a sign that consumers are welcoming the Open Banking revolution. In fact, new opportunities are currently 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.

Open Banking trends and applications

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

Fabrick Open Banking and Open Finance solutions

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

Fabrick ensures security and innovation leveraging the Open Banking technology infrastructure and enabling the integration of Open Finance and Open Banking solutions across different industries and financial and non-financial processes and journeys.

Open banking use cases

Industries like insurance, hospitality and travel, retail, supply chain, automotive and banking and financial services businesses, to name a few, can benefit from the world of solutions and integrations that can be embedded into their offering, streamlining processes and customer journeys. Customer stories like Toyota Financial Services Italy’s, introducing a new centralised platform for the end-to-end management of collections and payments by leveraging Fabrick Payment Orchestra, and Q8 with the introduction of a new top-up feature for the Q8 digital wallet, are examples of Open Banking and Open Finance solutions integrated in the customer journey.

Discover more of Fabrick’s customer stories in our dedicated section.