“Money makes the world go round,” the old saying goes, and it’s still true today. But now, it’s the digital form of money that’s driving the economy. With billions of dollars flowing through online transactions, banks have traditionally held control. However, this dynamic is shifting with the advent of open banking.
This new approach puts the power back in the hands of account holders – both individuals and businesses – by giving them more control over their financial information, which opens up a world of innovative financial services.
Standing firm at the forefront of this fintech revolution, BrightMarbles Group is actively involved in implementing these cutting-edge solutions.
In this article, we’ll explore how mobile apps are developed in this new era and outline our role in these transformative projects.
What Is Open Banking?
Open banking is a revolutionary concept in the financial industry that allows third-party developers to build applications and services around financial institutions. This is made possible through the use of Application Programming Interfaces (APIs), which enable the secure sharing of financial data with authorized providers.
At its core, open banking is about giving account holders more control and visibility over their financial data. Traditionally, banks have held exclusive access to this data, but with open banking, account holders can now grant permission to third-party providers to access their financial information. This shift facilitates a range of innovative services, such as personalized budgeting tools, more competitive loan offers, and integrated payment systems.
One of the key drivers of open banking is the push for increased competition and innovation in the financial sector. By breaking down the barriers between banks and third-party providers, open banking fosters a more dynamic and competitive market. Moreover, regulatory frameworks like the EU’s PSD2 (Payment Services Directive 2) mandate strict security standards for data sharing, ensuring that while data is more accessible, it remains secure and only shared with trusted entities.
For businesses, open banking presents numerous opportunities to innovate and enhance customer experiences. Fintech companies can develop new solutions that integrate seamlessly with existing banking infrastructure, offering users a unified and more efficient way to manage their finances.
BM Insight: Whenever a business innovation sees the light of the day, serious companies stand at the front of such initiatives and reserve their seat for future endeavors. BrightMarbles Group has been an active participant in various fintech projects, embracing new regulations and development trends in this field, open banking included. Learn how we do it in our article BrightMarbles and Fintech Transformation in 2024.0 and Beyond
Examples of Open Banking Data Exchange
In online banking, certain features have become essential for every banking app. As reported by GoCardless, these include balance reports, transaction statements, cash flow tracking, and accounting data. We’d also add savings account information to these core features. Each bank expands this list based on their business policy and capabilities.
Let’s now go through several examples to explain how open banking data exchange works in greater detail.
Example 1: Personal Finance Management
Bruce Pitt is a bank account holder who struggles to track his overheads and overall expenditure. Through open banking, Bruce discovers a home-budgeting app that can help him organize his monthly spending. By granting the app access to his bank account data, Bruce can now effortlessly track his expenses, identify spending patterns, and receive tailored financial advice. This saves him time snf significantly enhances his ability to manage his finances efficiently.
Example 2: Streamlined Property Investment
Florence Mason, a small-business owner, is looking to expand her office space. She maintains two separate bank accounts: one for personal use and one for her business. Previously, Florence would have had to manually request and submit bank statements and credit history documents to real estate agencies and construction companies. Thanks to open banking, she can now authorize these third parties to access her bank data directly. This seamless data exchange accelerates the decision-making process and provides Florence with real-time insights, making her property investment journey much more efficient.
Example 3: Enhanced Loan Applications
David is an entrepreneur seeking a business loan to fund his startup. Traditionally, he would need to compile various financial documents and wait for bank approval. With open banking, David can connect his financial data with potential lenders instantly. This real-time data access allows lenders to assess David’s financial health quickly and accurately, resulting in faster loan approvals and better loan terms. This streamlined process benefits David and enhances the lender’s ability to make informed decisions.
BM Insight: Speaking of real-estate investments, our company is proud to have been participating in various software development projects in the last few years. On the one hand, we’ve accepted such projects because they were good business choices. On the other hand, we’ve been working with these particular partners because they’re improving people’s lives along the way. A company supporting partial homeownership, a business improving the issuance of construction permits, a traditional real estate agency wishing to modernize all their services, and many other clients have confirmed that we’re also builders of a certain kind. Find out more about our real-estate software projects in the article BrightMarbles Building the Real-Estate Innovation.
Open Banking in the EU vs. USA
Open banking is evolving differently in the European Union and the United States, each shaped by distinct regulatory and market forces.
European Union
In the EU, open banking is driven by the Revised Payment Services Directive (PSD2). Enacted in 2018, PSD2 requires banks to provide third-party providers access to customer account information and payment services with customer consent. This regulatory framework aims to boost competition and innovation while ensuring strong consumer protection and standardized security measures, such as strong customer authentication (SCA). Consequently, European consumers enjoy a wide range of innovative financial services and a cohesive open banking ecosystem.
United States
The US approach to open banking is more market-driven and less regulated. Without a PSD2 equivalent, the development relies on voluntary collaboration between banks and fintech companies, leading to a fragmented landscape. Major financial institutions and tech companies often lead the way, creating their own APIs and partnerships. This has resulted in varied data sharing practices and security standards. Despite the lack of a unified regulatory framework, the US market is rapidly innovating, with fintech companies leveraging customer-permissioned data to develop new financial products and services. However, the Consumer Financial Protection’s Bureau regulation on open banking is about to be adopted in the fall of 2024. Once this legislation becomes effective, US citizens will also be able to allow third-parties to collect information directly from their accounts and digital wallets.
BM Insight: This inventive approach to financial data exchange is being and will be introduced in some other parts of the world, as well. For the time being, there has been a gradual introduction of open banking in Japan, and we can also expect its development in some parts of Latin America. Still, in some other parts of the world, primarily in some Asian regions, super apps, such as the Chinese WeChat, are a popular tech solution for integrated digital services. Such systems function as one large mobile app in which you can carry out most of the daily actions, from chatting and online shopping to paying bills, booking travels, etc. Read an in-depth story about super apps in our blog section: Why Are Super Apps Great (And Why They Might Not Be)
Open Banking Tech and Legal Prerequisites
Implementing open banking involves meeting both technological and legal prerequisites to ensure a secure, efficient, and compliant ecosystem.
Technological Prerequisites
- APIs (Application Programming Interfaces): APIs are the backbone of open banking, enabling secure data exchange between banks and third-party providers. Well-designed APIs facilitate real-time access to financial information and seamless integration of various services.
- Strong Customer Authentication (SCA): To protect user data and ensure secure transactions, robust authentication mechanisms like multi-factor authentication (MFA) are essential. SCA adds an extra layer of security, verifying the identity of users before granting access to sensitive financial information.
- Data Encryption: Ensuring that all data transmitted between parties is encrypted is crucial to protect against unauthorized access and cyber threats. Encryption standards such as TLS (Transport Layer Security) are commonly used to secure data in transit.
- Compliance with Standards: Adhering to established technical standards, such as those set by the Open Banking Implementation Entity (OBIE) in the UK or the Berlin Group in Europe, ensures interoperability and security across different platforms and services.
Legal Prerequisites
- Regulatory Compliance: Open banking initiatives must comply with relevant regulations like the EU’s PSD2 or similar frameworks in other regions. These regulations mandate data protection, transparency, and customer consent requirements.
- Data Protection and Privacy Laws: Compliance with data protection laws such as the General Data Protection Regulation (GDPR) in the EU or the California Consumer Privacy Act (CCPA) in the US is essential. These laws govern how personal data is collected, stored, and shared, ensuring users’ privacy rights are respected.
- Customer Consent: Legal frameworks require explicit customer consent for data sharing. Financial institutions must provide clear, transparent processes for obtaining and managing this consent, ensuring users are fully informed about how their data will be used.
- Third-Party Provider Authorization: Third-party providers must be authorized and registered with relevant regulatory bodies. This ensures they meet stringent security and operational standards before accessing customer financial data.
The Crucial Role of APIs in Open Banking
APIs are essential for connecting financial institutions with third-party developers. They enable seamless data exchange between banks and fintech companies, facilitating the creation of innovative mobile applications that offer personalized financial services such as budgeting tools and investment platforms.
APIs ensure the secure and efficient transfer of data, adhering to strict regulatory standards like PSD2 in Europe. This provides customers with control over their financial information while maintaining high security standards.
For developers, APIs are a gateway to a wealth of financial data, enabling features like real-time account information, transaction history, and payment initiation. This results in more intuitive and responsive mobile apps that cater to users’ specific financial needs.
Additionally, APIs promote interoperability among various financial systems, breaking down traditional silos within the banking sector. This interconnectedness benefits consumers by providing a unified view of their finances and encourages competition among service providers, enhancing the overall quality of financial products and services.
In essence, APIs are the driving force behind the open banking revolution, transforming how financial services are delivered and consumed. They empower both established institutions and agile startups to innovate rapidly, ultimately leading to a more dynamic and customer-centric financial landscape. As we continue to navigate this era, the role of APIs will only grow more integral, paving the way for a future where financial services are more accessible, transparent, and tailored to individual needs.
The Correlation Between UI/UX and APIs
In open banking, where competition is intense and user expectations are high, the harmony between UI/UX design and APIs is crucial, shaping how users interact with mobile banking apps. A well-designed interface enhances usability, but it’s the integration with powerful APIs that makes these experiences seamless, boosting satisfaction and engagement.
When you open a banking app, the user-friendly design you see is the result of meticulous UI/UX methodology. As our UI/UX designer highlighted in a recent interview, user-centric design is essential in any industry today.
In our mobile app development projects, we prioritize these features to ensure client satisfaction. We also integrate accessibility features that make tech inclusive. With digital payments expanding globally, we’re committed to making online work and payments accessible to everyone.
However, poor API integration can lead to sluggish performance and security issues, negatively impacting the user experience. Therefore, reliable and fast APIs are essential to support the front-end design, and a thoughtfully crafted UI/UX leverages these capabilities to their fullest.
Ultimately, the correlation between UI/UX and APIs underscores the need for a holistic approach to app development. By focusing on both design and technical elements, developers can create mobile banking apps that are aesthetically pleasing, powerful, and reliable, meeting the demands of today’s digital-savvy consumers.
Open Banking Procedure
The process of letting third-party services providers into a banking system workslike this:
1. User Consent
The process begins with the customer, who must provide explicit consent for their financial data to be shared with third-party providers through a user-friendly interface within their banking app or website. This ensures transparency and control over data sharing.
2. API Integration
Once consent is obtained, APIs come into play. Banks use APIs to securely share data with authorized third-party providers. These APIs are designed to meet strict regulatory standards, ensuring the safe and efficient transfer of information.
3. Data Access
Third-party providers, such as fintech companies, can access the user’s financial data through these APIs. This data includes account balances, transaction history, and other relevant financial information, which can be used to create personalized financial products and services.
4. Service Delivery
With access to financial data, third-party providers can offer a range of services, from budgeting tools and financial planning to loan comparisons and investment advice.
5. Continuous Monitoring
Ongoing monitoring and auditing ensure compliance with data protection regulations and maintain high standards of security and transparency.
Cybersecurity and Open Banking
Since we’re talking about personal and financial data stored online, security is one of the vital requirements for banks in the open-banking era. The main role of an open bank API is to build a secure link between the account owner’s bank and the relevant third party. That’s why banks must pass strict compliance procedures, in line with the PCI DSS Compliance Requirements and other relevant legal procedures. They’re regularly audited for those technical and security standards; the ones that pass the procedure receive the relevant certificates, being able to prove afterward they’ve implemented proper security regulations.
Thanks to various projects and industries we’ve been an active part of, BrightMarbles Group is able to implement various software solutions and meet different API standards. Our expertise, experience, and accountability guarantee that the software tools we bring to the fintech sector in the open-banking epoch are nothing but flawless. As excellence is one of our core values, we instill it in everything we work on. Our successfully completed projects and top-rated client reviews on Clutch support this statement and oblige us to keep doing the same in every present and future project.
What’s more, UN1QUELY – one of our branches – has specialized in providing cutting-edge cybersecurity tests in a plentitude of fields, especially in the banking industry.
From penetration testing and ethical hacking that check your current company security features to implementing innovative cybersec solutions of tomorrow, we’re here to provide full-spectrum digital services and software solutions.
Conclusion
If you talk to business owners, you’ll hear a vast majority of them say that cash flow is the magic ingredient that keeps your motor running. The same goes for ordinary, non-business, everyday living: you need enough money to make ends meet, invest in some assets for the future, and live a pleasant life.
Banks and other financial institutions offer different options to people and companies alike. It’s up to us if and how we’re going to use them. Open banking is a practical addition to the world of business and finance, aimed at liberalizing and democratizing it.
At BrightMarbles Group, we’ve rolled up our sleeves, working hard to learn how to implement new fintech features and combine them with our extensive tech knowledge. If you happen to need a new partner to advance your existing banking system or build a new one from scratch, we’re here to help you reach your goals.
Let us show you why those 39 companies on Clutch have rates us with flying colors and book a discovery workshop at any time: https://brightmarbles.io/contact/.
About Author
Pavle Bobic is an expert business writer. A long-term holder of master’s degree in the English language and literature and once-teacher, he has been producing content in biztech, IT, fintech and eCommerce since 2013. His expertise drills deep into the correlations between information technology, business development, and financial technology, with a pinch of SEO on the top.