Land-based, physical banking branches and private banking services still remain important elements of the banking infrastructure. But their role and influence in the modern world is changing significantly. According to fintech expert Sergey Kondratenko, digital technologies allow banks to expand their scope of activity and provide clients with more convenient and accessible services – online banking and mobile applications.

However, digital transformation in banking must be carried out carefully and securely, given the importance of protecting customers’ financial data. Open banking will help with this – a trend that has become increasingly popular over the past few years. And in 2023, its development will only increase. According to Sergey Kondratenko, the concept of open banking provides customers with the opportunity to share their data with third parties, such as fintech companies, to gain access to innovative financial services. This trend encourages banks to actively implement open interfaces and collaborate with the fintech ecosystem. Thus, they expand the possibilities of clients in the field of banking services. How does this happen, what advantages does open banking have and how is it used in global financial systems?

Sergey Kondratenkois a recognized specialist in a wide range of e-commerce services with experience for many years. Now, Sergey is the owner and leader of a group of companies engaged not only in different segments of e-commerce, but also successfully operating in different jurisdictions, represented on all continents of the world. The main goal is to drive new traffic, create and deliver an online experience that will endear users to the brand, and turn visitors into customers while maximizing overall profitability of the online business.

Features of using open banking in the UK and the USA – Sergey Kondratenko

The concept of open banking originated and is successfully developing in the UK. Thus, in the first quarter of 2023, the UK became the leader in Europe in quantity registered Chamber of Commerce and Industry, there were as many as 221 companies. This significant increase speaks to the growing availability of open banking services for consumers.

Sergey Kondratenko notes that the success of open banking in the UK is also confirmed by the growth in the number of API calls and the volume of payments that are made through this infrastructure. In 2022, there was a huge increase in the number of successful API calls, about 1 billion monthly. This impressive number reflects the widespread adoption of open banking infrastructure and the successful integration of financial services across various platforms in the country.

If we talk about American consumers of financial services, 87% of them prefer open banking.

But what’s important here is that open banking and banking as a service (BaaS) represent two different approaches to using APIs in financial services. In the US, BaaS is becoming increasingly relevant, while in the UK open banking is more common. Although both approaches involve the use of APIs, their goals and focus are different. Let’s figure it out.

Open banking, according to Sergey Kondratenko, is primarily focused on ensuring secure data exchange and providing third parties with access to customer bank accounts. He adds that the main goal is to improve the quality of customer service, develop new digital services and increase the bank’s income.

On the other hand, BaaS focuses on providing banks with a platform through which third-party companies can offer their products or services using banking functions. This allows fintech startups and other organizations to embed banking capabilities into their apps and provide unique financial solutions to their customers.

Open banking and PSD2 in the European banking sector – Sergey Kondratenko

In recent years, open banking has become a key component of the modernization of the financial industry. Western countries, including European countries, Great Britain and Australia, became the first in the world to enshrine the principles of open banking at the legislative level.

As Sergey Kondratenko informs, in the European Union this step was implemented through the adoption of the Second Payment Directive (PSD2) in 2016, and then in 2019 it was put into practice. The UK adopted a similar directive on the introduction of open banking.

These legislative support measures were an important step towards creating open and competitive markets for financial services.

Sergey Kondratenko notes that one of the key provisions of PSD2 is the requirement for banks to provide third-party service providers with access to information about customer accounts and the ability to initiate payments on their behalf with the customer’s consent. This provided an opportunity for the development of open banking. Allowed customers to securely share their financial data with third parties through open APIs.

– PSD2 has also opened the door to new entrants into the financial services market, such as fintech startups and non-banks. These players are offering innovative products and services and expanding the traditional banking space. Thanks to this regulation, banks have also begun to actively collaborate with third-party service providers to provide customers with a more personalized and convenient financial experience, says Sergey Kondratenko.

The expert considers it interesting to note this fact: Tink, a European fintech startup, was one of the first pioneers in the field of open banking. He began his activities in this field in 2012. An important point was that Tink was acquired by Visa last year.

The Tink platform has successfully integrated over 3,400 banks and reached over 250 million customers in Europe. Every day, Tink processes a huge amount of data, more than 10 billion transactions, highlighting its important role in analyzing and providing access to financial information.

This is a great example of how fintech startups can play a key role in developing open banking and promoting innovation in the financial industry.

Open banking as the basis for digital transformation in the banking sector – Sergey Kondratenko

The key features that characterize the digital transformation of the banking sector, according to Sergey Kondratenko, are the following:

• Digital registration and KYC. Previously, interaction with banks depended on a personal meeting between the client and the teller. Banks are now providing personalized experiences to customers through digital channels, including mobile apps and websites.
• Process automation. Operations that were previously performed manually are now automated. This increases efficiency, reduces costs and allows employees to focus on more important tasks.
• Data-driven decision making. Using data and analytics allows banks to make informed decisions, including detecting fraud and developing new products.
• Mobile banking. The bank’s mobile application becomes the hub for most banking transactions and customer account management.
• Protection against cyber attacks and data leaks is becoming critical for modern banks.
• Artificial intelligence and machine learning. Their use allows banks to automate processes, improve customer interaction and fight fraud. These technologies can provide recommendations to customers based on their behavior and transaction history.

One cannot but agree that the listed features are integral components of the digital banking world. And the main means by which they are implemented is open banking, reports Sergey Kondratenko.

The expert suggests considering five main ways in which open banking promotes digital transformation in the banking industry:

1. Improving the quality of customer service.Open banking opens the door to more personalized customer service. Financial institutions and fintech companies can offer innovative products and services that are tailored to each customer’s needs.
2. Increased competition.The emergence of a plethora of fintech companies ready to compete with reputable financial institutions is driving innovation and improvement in financial products and services. This leads to more flexible adaptation of products to the specific needs and interests of customers.
3. Increased efficiency.Using APIs to exchange data and automate processes significantly speeds up tasks that previously required many manual steps.
4. New business models.With access to customer financial data, both traditional financial institutions and fintech companies can create new sources of revenue. At the same time, they use a variety of sets of products and services to build more detailed business models.
5. Accessibility for everyone.Open banking expands access to financial services and helps meet the needs of diverse audiences.

In conclusion, the importance of open banking in the process of digital transformation in the banking sector and the financial industry as a whole should be emphasized. It drives innovation, stimulates competition, increases efficiency and improves customer service. Sergey Kondratenko emphasizes that for banks that strive to stay ahead and update their business, digital transformation using open banking is an integral part of the future.