Coronavirus to motivate open banking adoption

The move towards open banking, or the adoption of common application programming interfaces (APIs), may see greater acceleration as a result of coronavirus, market participants predict.

“Open banking and request to pay are two services that will really help people who maybe aren’t typically using digital services or aren’t taking full advantage of it and potentially give them access if those use cases allow,” said James Bushby, vice president, product sales at Mastercard during a webinar hosted by Kyriba on April 23.

“I think helping more people become more digital savvy and have greater access to financial services is becoming so much more relevant because of the circumstances we’re in.”

Open banking has seen several victories over the past month with companies like API provider Yapily raising $13m in funding despite the financial downturn, and TrueLayer offering its open banking API for free to companies during the pandemic. According to Jim Wadsworth, senior vice president, Open Banking at Mastercard, coronavirus could lead to an increase in open banking services in the UK.

But the US landscape presents different challenges. In contrast to the UK where Open Banking was mandated by the Competition and Markets Authority (CMA) in tandem with the Second Payments Services Directive (PSD2) in 2018, the US has seen industry led initiatives. Stefano Vaccino, CEO of Yapily, believes open banking needs support from regulatory bodies in the US in order to unlock its potential to assist during the pandemic.

“In the current crisis, quick and easy access to capital, both for businesses and individuals, along with a clear understanding of the status of your financial situation, is fundamental. Open banking opens the door to being able to have both. To support the whole economy, the US regulator should accelerate the adoption of open banking across financial services,” said Vaccino in an email.

“If open banking isn’t mandated in any territory then we will see adoption hampered. The number of banks that do adopt open banking will likely not guarantee sufficient coverage for the initiative to take off in any meaningful way.”

According to Vaccino, without a push from regulators open banking will unravel in a fragmentated landscape, as banks will have to forge individual negotiations with third parties. He believes this will lead to incumbent banks having full control over applications, which would remove competition.

“When something’s not regulatory driven, the urgency for the banks to adopt the new API standards is obviously less, so the demand by the end user and by third parties wanting to launch these services is then the critical pressure that is put on the banks, and I guess the banks then have to find a way to try and monetise and get benefit themselves,” said Bushby during the webinar.

The push towards regulation in the US is echoed by Paul Simpson, strategic payments director, Kyriba.

“For payments, the standards need to be industry-wide,” he said, via email. “APIs should be standardised and consistent from a journey perspective. Regulation needs to be implemented so firms can both register but also be validated once approved, so there needs to be a country-wide directory that needs API look-up as part of the Open Banking flows.”

Despite debate over regulatory action in the US, the coronavirus has spurred an increase in needs to access financial services digitally. Shefali Roy, chief compliance officer and chief operating officer, TrueLayer, believes it is hard to predict what the long-term impact of coronavirus will be, but that the shift to digital-only finance will cause an increase in open banking adoption.

“When this crisis is finally over and we begin to take stock of how various industries responded, I believe the fintech industry and Open Banking regulations will be cast in a very positive light. The adaptability of existing fintech solutions, as well as the speed and flexibility of new solutions created during the crisis, will encourage other countries to adopt similar regulations,” said Roy in an email.

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