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Open Banking: Which are the methods?

“The principle of being able to determine how you use your own data is also a priority for financial institutions today,” says Massimo Ferrari, CEO of Assetmax.

PSD2 and Open Banking

As he explained, a concrete measure was taken by the EU with the introduction of PSD2 (Payment Services Directive 2). This directive requires financial institutions to pass payment account information to external service providers on the premise that they want it. This is to be done through the so-called Open Banking: the ability to access account information via open and standardized programming interfaces (API).

However, the broad adoption of this directive in Switzerland is not regulatory mandatory and has actually not yet taken place. The SBA (Swiss Bankers Association) argues that this “opening process” should be driven by demand rather than lawmakers.

Open Banking democratizes the innovation process

Massimo Ferrari is convinced that banking customers could benefit from open banking because this standardization would democratize the innovation process in the financial industry: any company could easily access the necessary data at the custodian’s bank to provide a financial service. Conversely, a custodian bank with a reduced IT outlay could integrate interesting and innovative services from third parties into its own offering. “Bank customers are ultimately opening up a sort of App Account Account Information Service through Open Banking,” explains Ferrari, “a revolution that has also attracted the interest of big tech companies such as Google, Apple, Amazon.”

Even without adoption of PSD2, Switzerland continues to move in the direction of open banking interfaces. On the one hand, there are initiatives such as the “API Banking” of the trade association Swiss Fintech Innovations (SFTI), which are aimed at the definition and adoption of open standard interfaces by Swiss institutes. On the other hand, there are around 300 innovative companies in Switzerland (source: Swisscom Fintech Startup Map December 2018), which need a connection to financial service providers and would benefit greatly from standardizing the interface.

Open formats as a basis for open banking

Ferrari raises the question of which technical hurdles could further hamper the introduction of a Swiss version of “open banking”. After all, standardization is not an invention of recent years. For example, Swift and Ebics have long been offering formats and protocols for exchanging account and securities information. These are mostly proprietary formats which can incur costs when in use. However, “open banking” should be based on open formats. There are already well-established suppliers in the EU market who can supply these formats, and they will soon establish themselves in Switzerland as well.

“The biggest hurdle comes from the heterogeneity of the IT systems of the banks,” says Ferrari. In his view, the transmission of payment account information is not difficult, but the preparation of complete custody and securities information or transaction data poses a major challenge for the bank, as the quality of these data varies widely from bank to bank. Finally, the exchange of some individual personal data (e.g., identification information or investor profile) would also be necessary to provide a complete service. The discussion concerning such possibilities is still in its infancy.

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