Challenges in Open Banking – Opinion of Ukrainian Investor Nykyta Izmaylov
By: James Clifford
The global financial market is moving towards open banking. Leading fintech companies are also following suit. Others, such as the United Kingdom, are still working on their first steps and do not expect any promising pilot projects until 2025. The United States and Latin America are cautiously approaching the desired goals. However, all market participants are trying to keep up. This is a challenge even for the major fintechs. From the UK’s Open Banking Limited to Ukraine’s Sportbank.
Nykyta Istamaylov is the founder of SportbankOne of Ukraine’s most famous neobanks has expressed her point of view on the open banking perspective.
Nykyta Zmaylov is the founder of Sportbank
Open banking is a way to legally share customers’ financial information with other banks or third-party providers. Open banking is a legal way to share information about a bank’s clientele, including recent payments, transaction histories, and use of various financial services (from insurance to deposits). Sharing data is only allowed if the customer agrees to share their data. The data can be shared freely if the “Allow” button is pressed. If the customer does not want to press the “Allow” button, the bank cannot share financial information with other parties. Nykyta says this is the most important requirement/condition.
Some people believe this is a way to shift blame, while others think it is a way to protect consumers from responsibility. This condition must be met by all customers so that they can choose their own path and show their attitude towards open banking.
Nykyta explains that nothing really changes for banking institutions or fintechs. Open banking is the digital exchange of financial data via an API to ensure security. The Open API was created to protect customer information, and many fintechs use API to develop advanced software for their customers. It could be an IT developer or contractor from one of the nine British banks, such as Barclays or Bizum in Spain or the Ukrainian Sportbank.
Why people need open banking, the perspective of Nykyta Izmaylov
The online banking project “My Bank in the Living Room” of the Federal Post Office, implemented in Germany in the 1980s, is generally considered to be the beginning, says the founder of Sportbank. Around two thousand Germans took part in the initiative and made the first online money transfers ever. The first online money transfers were made by around 2000 German citizens.
Even then, there were still disputes about the secure exchange of financial data. Customers had to be convinced of this. Bank secrecy has been part of banking for decades. It is also not disclosed to anyone outside the company without the customer’s consent. British banks faced the same problems when they launched their first online banking service just over 10 years ago.
Over time, the public began to appreciate and enjoy the benefits of open banking. This feature led to the creation of new fintech applications and new fintech projects. These made it easier for ordinary people to keep their finances in order. This technology is available to everyone, whether it is a representative of a small business or an ordinary citizen.
Nykyta Izmaylov describes the benefits that consumers receive through open banking.
- New applications that are convenient and useful, projects to make banking and financial services more accessible. You no longer need to have a bunch of apps for each bank, mobile/utility operator or other service providers on your phone (depending on the number of accounts). You can choose just one app to display all your banks, operators and other relevant companies.
- Payments and banking are now faster. Money can be transferred within minutes or seconds.
- Banks and financial companies are reducing their tariffs, which consumers appreciate. Some services are free and others include pleasant bonuses.
Nykyta explains that all this happened when professionals learned how to stop fraudsters and hackers. Global regulators are increasing their requirements for banks, making them responsible for the security of their customers’ funds and financial information. Now the public has less to worry about their data being misused or money being lost.
European rulebook and British breakthrough
Financial experts have long known that open banking is the future of the banking sector and banks in general. In the early 2000s, government officials began to realize this. Therefore, in 2007, the European Commission developed the first Payment Services Directive. This was done to increase competition in the market, force financiers to improve their service quality and reduce their prices, while protecting consumers. The document outlined the basic payment rules and gave non-banking organizations access to the market. Nykyta Izmaylov said that it was they who would drive the momentum of development.
The Europeans did not stop there: in 2018, a new rulebook, PSD2, was published. It took another year for the directives to be implemented in practice. The new version outlined enhanced security measures that should be implemented for money transfers. Most importantly, the new version specifies the new requirement of Open Banking: the bank is obliged (must do so, but cannot refuse) to share banking data with third parties via API if the customer has authorized it. Fintechs and IT solution providers are eligible.
PSD2 is seen by many as a revolutionary leap (although PSD3 is now being discussed), but the European Commission had already started the journey. Open Banking is pioneered by British banks. The United Kingdom has been testing the main developments. In 2016, that country’s Competition and Markets Authority approved rules that gave licensed startups direct access to their banking data. Nine of the UK’s largest banks were affected: HSBC Barclays RBS Santander Bank of Ireland Allied Irish Bank Danske Bank Lloyds Nationwide
Nykyta zmaylov reminds us that the CMA was responsible for establishing Open Banking Limited, an executive body that developed industry standards in the sector. The first standards were implemented in early 2018, and British authorities claim that the innovation roadmap will be completed by 2023. OBL reported that more than 8 million residents of the UK are now actively using open banking tools and applications (more often than once a month). Open banking is offered by 340 providers regulated in the UK.
New plans and countries to transform the country
Nykyta Izmaylov cites data from a Yapily benchmark study, which assesses the UK’s maturity in implementing and promoting open banking at an extremely high level. The UK scored 9.2 out of 10.
The Sportsbank investor says that European Union countries are also trying to keep up with the pace. Demand for remote financial services increased dramatically during the coronavirus pandemic, when people were forced into isolation.
Yapily researchers also noted Germany’s increasing digitalization, with a maturity level of 8.2. The Berlin-based group, which includes payment service providers in 10 EU member countries, has developed an open-source binding software and a set standard that allows TPPs to freely connect to APIs from different account providers. Many have recognized the value of this group’s contribution.
Yapily also gave Sweden 8 points for its rapid development of open banking payment systems, thanks to the Swish platform for instant transfers. The six largest Swedish banks have adopted this platform, which is now used by almost 80% of the population.
The Netherlands (7.7 points), Lithuania (7.5 points), Denmark (7.2 points), Ireland (7.7 points) and others are all among the top five countries in Europe in implementing open banking.
The Monetary Authority of Singapore is working on developing standards for information disclosure and has already published the API manual. The Australian Competition and Consumer Commission is also moving in this direction. It not only requires financial institutions to disclose APIs, but also monitors compliance and imposes penalties on violators.
Mexico, Chile and Colombia are also taking steps to achieve the same goal, but concerns remain about the practical implementation of standards and requirements. Joe Biden, President of the United States, issued a decree in 2021 instructing the relevant authorities to start working on standards and rules for open banking. However, Nykyta Izmaylov argues that the country has made little progress so far.
Slowly but surely, many developing countries are making progress. The Ukrainian law that could pave the way for open banking (On Payment Services) was adopted in June 2021. This legislation takes into account European PSD2 practices, as the National Bank of Ukraine is developing the “Concept of Open Banking” shortly before August 10, 2023. The slow pace of development is not due to the laziness of officials, but rather to the ongoing war.
Sportbank, a Ukrainian fintech company, is constantly studying the latest technologies and global experience. This will help us to successfully implement many projects on our own soil. Nykyta Izmaylov sums up that according to the National Bank’s roadmap, the first Open Banking pilot project (with a small number of participants) is planned to be launched by the third quarter of 2025.
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