Open Banking Explained: How it Works and Why We Need It?

Banks and financial institutions like Jeton will be able to benefit from new partnerships and a broader base of accessible data from other financial and non-financial service providers by offering new value-added services to their customers. Services they do not have to build or run themselves.

Open Banking enables banks to build relationships with external developers, which leads to a better understanding of both the market and the end users and also allows them to make smarter decisions about products and channels.

What is Open Banking?

As the name suggests, open banking is all about opening up banking data, to help consumers make the right financial choices.

In 2015, HM Treasury requested the formation of an Open Banking Working Group (OBWG) to explore how opening up bank data in the UK could benefit consumers and how these benefits could best be achieved. The group’s report, released in February 2016, recommended the creation of an Open Banking Standard using an open application programming interface (API).
The OBWG recommended that this common API standard should allow:

  • open access to open data – i.e. allowing anyone, from TPPs to individual customers, to access publicly-available data such as pricing and product information
  • controlled access to shared data – i.e. granting regulated TPPs access to customer-account transaction data, provided the TPP has customer consent

Is open banking good?

Until open banking was introduced, current accounts and mortgages had hardly changed; but the mainstream adaptation of smartphone technology around 15 years ago has shown how quickly things can change.

Open banking aims to make your bank account as intuitive as a smartphone. The UK’s big banks are supporting a new, simpler way of initiating payments, allowing you to pay for products and services directly from your bank account.

This means payment gateways like PayPal or Worldpay and card processors like Visa and MasterCard can be bypassed and the savings made from not paying those providers passed along to consumers.

It opens the way to new products and services that could help customers and small to medium-sized businesses get a better deal.

How safe is open banking?

Open banking is safe and secure, it can help you bring all your accounts into one place, and when data is shared it only ever done so with your consent.

  • You’re never asked to share your password or login details – other than your own bank or building society.
  • You can choose which services you use, and which providers you allow to access your information.
  • You can choose for how long you’d like them to access your data.
  • You should not share your bank login details, but you should still be careful who you are sharing your details with.

Second Payment Services Directive (PSD2)

The second Payment Services Directive is a new piece of European legislation which came into force on 13 January 2018. It enables regulated third party providers, with a customer’s consent, to access a customer’s bank account information and/or request payments.

It aims to attract new providers and technology companies to enter the market and create more innovative services for customers.

Main objectives of PSD2:

  • Contribute to a more integrated and efficient European payments market to enable greater choice and transparency of payment services
  • Create a level playing field for payment service providers, including new players
  • Make payments safer and more secure
  • Strengthen consumer trust by enforcing higher security to protect consumer data
  • Ensure better pricing for consumers. 

Jeton Wallet is fully compliant with the PSD2 regulations.