Origin and Definition of Open Banking

The concept of “Open Banking” originated from the report issued by the Competition and Markets Authority (CMA) in August 2016: The percentage of users who switch banks is extremely low so that traditional, large commercial banks are less competitive while emerging, small banks are struggling to survive. The expenditure of consumers is more than a reasonable amount (such as high overdraft fees) and they are not benefiting from new services.

To solve this problem, the report puts forward the concept of “Open Banking”, committed to providing a level playing field for small financial institutions and enabling consumers to enjoy the benefits of technological advancement. Therefore, Open Banking was born to promote the development of small and medium banks and enhance customer consumption needs through data standardization at the outset.

The initial Open Banking was essentially the sharing of bank data with Open Application Programming Interface (API) as a cutting-edge technical means to achieve related goals. However, with the deepening of theory, supervision and practice, Open Banking has been endowed more meanings. The definition of Open Banking on Wikipedia is “the use of APIs that enable third-party developers to build applications and services around the financial institution.”

Gartner has defined “Open Banking” as a platform business where data, algorithms, transaction records and procedures are shared within the ecosystem to provide services to partners including customers, employees, third party developers, FinTech companies and vendors to enable banks to create new value and core capabilities.

In summary, as an “Internet-based” business model, Open Banking means that banks provide SDK (Software Development Kit) to integrate various APPs of cooperative partners based on open platform API (Application Programming Interface) or scenario requirements. By sharing data, algorithms, transactions, processes and other business functions with the business ecosystem partners, provide financial services for the business ecosystem partners and customers with scenario-based financial services in accordance with the operating rules agreed by the partners.

For the bank, it is in the middle and back position of the service chain, mainly as a financial medium to provide financial products and prevent and control financial risks. For the partners, they can achieve resource sharing, scenario integration and complementary advantages with the bank on this open platform to provide customers with a full range of financial services covering clothing, food, housing and transportation. For users, they do not have to provide keys, and based on data security sharing, they can manage different accounts on one interface, comparing them according to their own needs in choosing products and better managing assets.

In this financial ecological chain composed of banks, partners, and customers, through openness and sharing, we will improve the online and offline industrial ecological chain, effectively connect online and offline financial services. Through service upgrades and value recreation, we will realize the perfect combination of users, products and services in order to build digital and full-scene unbounded finance.