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Open Banking is a new concept that emerged from PSD2 and Open Banking Remedy. Why is it needed? To improve the quality of customer service and enable third parties to use and analyze the bank's data. This is done with the help of an API.

An API is a software interface made up of a set of out-of-the-box functions or structures that are provided by an application or service. Or the operating system if you want to use classes or constants for external software products.

Payment Services Directive (PSD) - Directives of the European Parliament and the European Commission aimed at regulating the common European market for online payments and online banking. There are two versions of this document. PSD2 was adopted in 2013, replacing PSD, which had been in force since 2007.

PSD2, in particular, regulates payment initiation services and services based on account information - activities that were not considered in the first version of the document.

The directive establishes uniform rules for cross-border transfers and payments within the European Union and the European Economic Area, thereby ensuring fair competition between financial institutions and more transparent rules for consumers of services.

The Open Banking concept is implemented with an API and additional tools that enable interaction between different programs and services. It is important to note that Open APIs are easy to adapt to applications, which allows financial institutions to offer new services.

The open API gives developers and businesses a whole range of possibilities. With its help, it is possible to reduce the number of actions a user performs to achieve his goal. For example, instead of using a large number of different services and trying to figure out complex eCommerce payment mechanisms, the user only needs to select the bank of interest in the mobile app and confirm the transaction, which reduces the number of actions. Thanks to the simplified mechanism of interaction with the user, businesses do not lose customers.

It is also worth noting the level of security of Open API, which is mainly due to the authentication system, designed in accordance with the requirements of regulators. For example, in accordance with the second payment services directive of the European Union or PSD2.
 
Open banking has, for lack of a better word, revolutionized the way financial institutions interact with their customers. In one form or another, the idea of ‘open banking’ has existed since the late 1990s when banking institutions throughout Europe (largely in Germany) endeavored to break the siloed approach to banking. Cut to today and the idea of ‘open banking’ is picking up momentum on a daily basis as the technology needed to implement the ideal is evolving at an incredible pace.

Open banking is quickly becoming the bedrock of a new generation of financial service apps and platforms that are greatly impacting the way consumers and banks go about handling their money and services. However, there is still some way to go for open banking to help improve financial literacy, trust, and engagement with consumers and their financial institutions.

Throughout 2022, we’ve seen the economy shift dramatically across the world, and particularly in Europe, while shifting geopolitics have created widespread macroeconomic uncertainty. As a result, people have leaned on digital tools to make managing money easier to understand and more convenient –this was true during COVID, and according to latest research, remains true today.

In response to this turmoil, people in Europe are actively using fintech to manage their financial stress: 41% of respondents say fintech enables them to understand their spending so that they can better manage their money, a 5 percentage point increase on last year (36%).

While this turbulence means many people across the Europe may turn to a “back to basics” approach to finance, that doesn’t mean abandoning digital tools. In fact, the tools that open banking helped create weren’t around for the last 2008 financial crisis. Instead, based on the developments we’ve seen on the market this year, next year, the industry is poised to further embrace open banking for several reasons.

Firstly, open banking makes it easier for developers to build digital financial tools accessible to everyone. That ease of use and cost efficiency will continue to drive more digital financial companies to use open banking.

At the same time, as the number of acute open banking users in Europe grows by an average of 12% annually, people are becoming more accustomed to managing their money online - and they expect to do so with the speed and ease that open banking provides. Bringing these forces together will push innovation to unimaginable limits and ultimately provide a platform for solving real consumer problems.
 
In September, research firm FintechMagazine launched their very first "Banking Disruption Index," a quarterly assessment of consumer attitudes toward the digital capabilities of their banks. They launched this index to see whether consumer attitudes toward digital banking are evolving at the same pace as innovation in the sector, and whether banks - traditional and challenger - need to rethink their digital offerings. The first index for the third quarter showed that there are a number of areas for improvement in the banking sector, not the least of which is trust.

The data showed that 48% of people don't trust their bank to help them manage their finances during the recession (which has come since this data was recorded). If less than half of consumers trust their banks during times of severe financial uncertainty, how can these banking institutions and open banking platforms count on trust when engagement is conspicuously absent?

In 2023, consumers and banking institutions (both new and old) are struggling with a cost-of-living crisis that is negatively impacting trust. This impact on financial confidence could have long-lasting consequences unless action is taken to strengthen corporate and consumer confidence in their money and how best to manage it. This is where the value of financial transparency in open banking comes in.

An excellent example of this is the Open Banking (organization) Impact Report released in June, which showed that a large percentage of respondents (77%) said that as a result of using open banking services, they now have a more immediate and accurate view of their financial situation at any given time. These services include real-time transactions, cloud-based accounting and greater access to accounts.
 
Until now, fintechs have enjoyed a mostly unregulated universe with respect to their use of customer data — especially when compared to their regulated counterparts (and competitors) in the traditional banking space. But according to many experts, those days are numbered.

Perhaps the topic of regulation by federal agencies of fintech has become one of the frequently mentioned agendas in 2022. The active trend to regulate digital finance and financial institutions is actually good news for many fintechs that are trying to compete and move forward with open banking. For them, the "R" word is not at all scary. They look forward to the long overdue rules and guidelines that will help open the door to competition and innovation, and so accept the need to engage with regulators as their industry evolves.

Open banking redefines fintech as it allows financial service providers to access customer data via secure application programs interfaces (APIs). However, in order for this technology to be successful it must be carefully regulated in order to protect customer data, transactions and other sensitive information. Effective regulation of open banking is key to ensuring continued consumer confidence in fintech products. Banks and fintech companies should work together to create strong regulatory frameworks that ensure secure sharing of consumer data between both parties. This will enable fintech companies to expand their capabilities, increase consumer trust and ultimately become part of the mainstream financial services industry.
 
The importance of confidence in consumer finances could not be understated. In FintechMagazine's index we can see that as of September this year, overall consumer satisfaction with banks (out of 100) was 79, a high score for the first index which highlights an above-average level of consumer sentiment in banking institutions but insinuates once again that there is room for improvement,

It’s the innate aspects of open banking which are largely to thank for the result of this relatively high level of banking sentiments such as seamless and real-time transactions, increased transparency and a drastic improvement to the communication between banks and their customers.

Another reason why banks are being rewarded by a high level of satisfaction from their customers is their current ability to keep up with the growing technological trends in the space. Data shows that, as it stands, around 70% of consumers believe their bank is keeping up with technology quickly enough.

With open banking attributes at the forefront of current trends and themes offered to modern customers, this openness to engage with new technology from banking institutions is putting them in a strong position to build on in 2023 with increased collaboration with open banking APIs.
 
Based on the trends we are seeing in customer development and consumer behavior, we can assume that the industry will evolve in several key directions:

• The open banking potential is finally unlocked - Tough economic times will result in severe shake ups in approaches to common financial processes. As a result, we’ll see the industry rethink the full lending lifecycle, from underwriting to repayment, and new approaches to helping people manage their money and build safety nets amid economic turmoil. Open banking has a role to play throughout nearly all financial services innovations in the next year.
• Fintech fights back against fraud - As approaches to conducting fraud get more sophisticated and the financially vulnerable are more at risk, fintech companies will need to step up their approach to fighting fraud. They’ll seek more integrated approaches that weave together existing compliance/KYC processes, open banking, and more for better insights and prevention.
• Companies look across borders for growth opportunities -As markets continue to tighten, we’ll see more creative companies look to translate their products and services to reach new customers.
• Regulatory evolution - Regulators in Europe will get serious about a transition to Open Finance. Experts believe we’ll see in the EU we’ll see open banking implementation prioritized as a first step toward Open Finance. Recently, we’ve already seen movement from the EU with Instant Payments legislation, as it significantly speeds up the path to wide adoption of account-to-account payments, as one of the biggest use cases of Open Banking.

The stage is set for 2023 to be another strong year for open banking. Sentiment surrounding greater technology implementation in banking and financial control is high and with the difficulties that consumers face as the cost of living crisis and recession continue into the new year, banks, apps, and open banking platforms have an opportunity to demonstrate the value of their products in the most crucial of times.

Through open banking in 2023, consumers can improve clarity around their finances, improve their financial literacy and most importantly not have to sacrifice anything when it comes to security, with full transparency on where and how their transaction and account data is being used - all while improving customer service.
 
As we look back on the year 2022, it's clear that open banking and fintech were two of the biggest driving forces in the financial industry. Consumers have seen incredible value in the products and services offered, as traditional financial institutions move away from sole ownership and explore more collaborative models.

Open banking fintech provides people with the power to make better decisions for their finances, analyze spending habits, and unlock exclusive benefits in ways that weren't possible before. 

In the coming years, open banking is poised to become even more prominent. By 2023, financial institutions and tech giants alike will be relying on open-source systems for processing transactions, providing financial services, and securely exchanging data.

Consumers will benefit from better access to products like mobile payments, ultra-low interest rates on loans, and streamlined customer support experiences. Meanwhile new regulation proposed by the Open Banking Working Group has the potential to provide increased privacy controls while opening up competition between providers.

This in turn could drive an even more diverse landscape of innovative options in the sphere of fintech. As we look towards 2023 and beyond, it's a future of unprecedented opportunity for consumers and industry alike.