13-03-2023 11:18

What is Open Banking?

Open Banking is the practice of providing access to financial services, like for example your bank account information and payments, to other providers than your bank. Open Banking allows the sharing of data across institutions for use by you as a consumer, other financial institutions than your bank and third-party service providers. All based on your consent.
Side view of woman using phone at airport

How has Open Banking changed life for customers? 

Before Open Banking, you needed to use your bank’s own online services, either a mobile app or internet bank, to get an overview of your finances. And if you needed to pay for something or make a payment to someone, it was either with a credit card or through your bank’s internet bank or mobile app. 

Along comes Open Banking. Now you can, for instance,  carry out payments directly from your bank account when shopping in apps or on websites. And you can get a total overview of your account balances, even if you have accounts with several banks. 

In other words, Open Banking provides a wider range of ways to get an overview of your finances and makes it easier to make payments, because data can flow between various apps or websites – but only on your initiative and based on your consent as you are the one in charge. 

Some examples of Open Banking

Let’s dive into some examples from today’s Open Banking reality in the Nordics – services, which have only been made available in the recent years:

  • As a personal customer, you can grant your bank or a fintech company  access to your bank accounts and get a personalised spending overview – across more than one bank – and in this way get a better overview of your finances.
  • You can also receive all your bills from your online shopping in one mailbox app, which then lets you pay the bills directly from your bank account, and you can even choose from which of your various accounts the money should be withdrawn.
  • You can use different third-party services to pay for online purchases, directly from your bank account without going to the bank’s mobile app or internet bank, right in the check-out process of the online retailer.
  • You can apply for branded credit cards and consumer loans from your bank in the interface of different companies, without having to leave their web page.
  • Corporate customers can get real-time access to their bank data, straight into their own systems. 

How does Open Banking work?

Open Banking is built on the exchange of data, and it is always based on your consent. The exchange of data is technically enabled by the use of so-called APIs. API stands for application programming interface.

An API is an interface which can connect different IT systems, for instance between a bank and a fintech company, and let them securely share real-time data.

In other words, an API can make two IT systems ‘talk’ to each other despite the fact they are not from the same company.

Nordea’s API Market

Nordea has built a lot of APIs to enable other companies to create services which our customers can use. Some of them were built to comply with the PSD2 EU regulation and give our customers access to their accounts through third parties, for instance from other banks’ apps or from shopping apps. Others were built as Premium APIs, which we offer to our corporate customers to help them streamline their finances, increase efficiency, build frictionless customer experiences, boost their e-commerce and improve their financial security.

You can read more about our APIs at the Nordea API Market:

Is Open Banking safe?

The EU has implemented a number of measures to make Open Banking possible and to ensure that it is safe. This includes the Payment Services Directive (PSD2), which contains rules that are intended to protect consumers and ensure the security of their financial data. This is, for instance, why you have to identify yourself through two-factor verification such as BankID/MitID when you buy something online or use Open Banking services. It can be a little cumbersome, but it’s really important for security.

What are the limitations of Open Banking?

The foundation for Open Banking is laid out in the legislative framework of the EU’s PSD2 regulation. As regards opening up the banking sector, the regulation mainly focuses on two things, namely account information and initiating payments. That’s why Open Banking so far is mainly centred around getting an overview of your accounts or doing payments. However, some banks, like Nordea, are already offering more financial services embedded in non-banking applications to support customers’ needs.

In the future more banks are likely to follow suit.

What is the future of Open Banking?

It is clear that open banking will evolve into open finance, which is a broader concept with even more opportunities for both personal and corporate  customers.

Read more about Open Finance:

Digital banking
Banking innovation

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