4 things you didn’t know about open banking
The global fintech industry has been gravitating towards open banking solutions and products over the past couple of years, especially since the advent of the Revised Payment Services Directive (PSD2). Among other things, PSD2 allowed fintech companies to start gaining access to payment accounts to standardized, regulated Application Programming Interfaces (APIs).
Before merging to become finleap connect in 2019, figo and finreach solutions were PSD2-regulated API-based fintechs using open banking to offer multi banking services and bank account switch kit products, respectively. Now, finleap connect uses open banking in a variety of use cases, such as our account services, data categorization services, and PSD2-as-a-Service solutions. But what is open banking exactly, and how can companies reap the benefits and make the most of it?
According to big-four consulting company KPMG, open banking can generally be understood as the practice of giving bank customers the opportunity to give third parties (providers TTPs), e.g. fintech companies, banks, insurance companies, or even consultation services, access to their bank account data, either to authorize payments or to collect account information to optimize personalized insights. According to KPMG’s Insights on open banking, the greatest potential value in open banking for banks and fintech companies lies in its ability to personalize further financial products, like personal finance management tools, loyalty programs and payment platforms.
KPMG isn’t the only industry expert to see the value in open banking. EY regularly posts an Open Banking Opportunity Index, where it summarizes the opportunities and risks of open banking, as well as potential success factors in market adoption. Companies have been keen to observe open banking’s market potential, as the United Kingdom’s Open Banking Project launched in 2018, marking the beginning of open banking adoption in Europe.
European banking institutions appear to be fully aware of the potential of open banking. They usually partner with fintech companies who have the capability to read out payment and banking data to offer said open banking solutions.
Although much has been published about open banking, there’s still a lot to learn and discover about this trend in fintech. Here are four things you may not know about open banking.
1. Open banking doesn’t just apply to financial products
Open banking allows for banks, insurance companies and consultancies to gain deeper insight into their customers, both their financial behavior and financial needs. PSD2 and open banking give companies the opportunity to offer innovative, tailor-made solutions to their customers, by allowing for compliant, harmonized insights to increase customer touchpoints and provide the best solutions for everyone.
One of the best examples of this is Clark, Germany’s leading digital insurance broker. With the CLARK App, users can obtain a digital overview of all their insurance policies, an evaluation of their existing contracts and better policy suggestions from the entire market with just a few clicks. Open banking technology allows Clark to quickly create an overview of all of your insurance policies with in-depth analysis as to how well they each fit your needs.
Open banking doesn’t just benefit finance and insurance companies either. It opens the doors for practically any company to cross-sell based on banking data. By gaining valuable insight into their customers, players across industries can tailor their products to their own users, and find out what products they might also be interested in.
2. Open banking allows account and portfolio switch services to run smoothly
Opening a bank account in Germany can sometimes be quite difficult, only more complicated is switching bank accounts and carrying over direct debits, incoming payment transactions and standing orders. Without the use of technology, anyone who wants to switch banks must manually find out which payment partners need to be informed and ultimately write those companies asking for a change of bank details – both of which take up a lot of time and effort, and can be prone to error.
This is where account switch services come in, made possible by the power of open banking. For example, the finleap connect Account Switch Kit (ASK) product does the following to switch from one account to the other:
- Automatic payment readout: ASK accesses the payment account of the user to read out the transaction history of the old account (this is made possible by Open Banking).
- Creation of account report: ASK creates a report of all identified payment partners (credit/debit). This means that users don’t have to find them themselves.
- Notification management: ASK notifies all payment partners via the appropriate channel (letter, fax, email). The users don’t have to worry about forgetting to notify their payment partners of their new bank account number!
- Standing orders / balance transfer: Users can check which standing orders they have to take care of and can also initiate a transfer of their account balance.
- Account closure: Users can initiate an account closure order to their previous bank to close the payment account.
The best part? The whole process takes less than 10 minutes, instead of several hours!
The finleap connect Account Switch Kit doesn’t just have benefits for end users. With a conversion rate of over 90% banks also reap several benefits in using it. Customers that use the switch service are making the new bank their main bank connection – this enables the bank to better understand their users and make the right offers. Additionally, the Switch Kit drastically reduces costs and workload in the bank’s back office – partly thanks to open banking!
3. Thanks to open banking, Samsung Pay is able to launch in Germany
As you may have recently seen in the news, Samsung Pay officially launched in Germany, with the help of partners Solarisbank, Visa and finleap connect. As the Coronavirus pandemic has shown us, being able to pay digitally and without the use of cash is becoming more important in Germany than ever. As of October 28th, 2020, millions of Samsung customers in Germany can download the app and link with almost any bank account to pay with their phones wherever contactless payments are possible.
Powered in part by finleap connect’s state-of-the-art connectivity and financial insights, Solarisbank makes setting up Samsung Pay remarkably easy. To connect Samsung Pay to a personal bank account, Solarisbank uses a brand-new, convenient know your customer (KYC) process, made possible by open banking technology, that doesn’t require video identification or a visit to your bank branch. After successful registration, users receive a virtual Visa debit card that can be linked to almost any German bank account, marking the first time that Visa is using this service in Europe. As an added bonus, Samsung Pay comes integrated with Solarisbank’s Splitpay, giving users flexibility in paying for things in installments, rather than all at once.
4. The future of open banking is full of possibilities.
Open banking technology has certainly come a long way in a very short period of time. The future is full of an immense amount of new possibilities!
For example, companies like Finanzguru offer apps that allow customers to have a complete overview of all of their bank accounts, insurance contracts, phone contracts etc. to determine how much money is left over each day, week and month for spending and saving. In the future, Finanzguru is working on offering cards that have access to multiple bank accounts, something only possible through open banking!
The future of open banking is certainly bright: going forward, it will become standard that every successful financial services and insurance company have deep insights into their customers’ needs and wants. It will also become vital to be able to easily access and analyze important account data to give users insights into their financial status. As the technology advances, companies in every industry will be increasingly incentivized to take advantage of open banking to keep up with ever-changing customer demands and needs.
One thing is for sure: open banking isn’t going anywhere anytime soon, and we look forward to what the future holds!
Interested in partnering with us to reshape the future of finance together with open banking? Reach out to us here.
Several weeks ago, we announced our partnership with Solarisbank AG and VR-Bank Bad Salzungen Schmalkalden e.G. to bring the VR-Perfekt Fankarte to life ⚽️ The Fankarte is just one of many real-life examples of how #embeddedfinance can enable brands to create a tailored payment experience for their customers. But how can brands leverage embedded finance to reach the top of the digital wallet? This we answered together with Solarisbank in this Insights Blog article.
In Germany, April 22nd, 2021, marked the twentieth anniversary of the nationwide campaign day, Girl’s Day (Mädchen-Zukunftstag). To mark this special occasion, Christina Cassala from German fintech blog Payment & Banking asked several leaders in the fintech industry about the importance of the day, as well as what their companies are doing to support the next generation of female fintech leaders. Among those interviewed was our Chief Risk Officer, Dr. Lea Maria Siering.
This year, Capital Magazin analyzed and published an extensive study on the functionality of financial apps. To this end, the study asked a very important question: What can these apps really do? We asked our Chief Commercial Officer, Andreas Reuß, this very question.