Open Banking Vs Banking as a platform Vs Banking as service.
Open Banking
Open Banking is a process of financial institutions exchanging information with third-party providers (TPPs) with the account holders’ explicit consent.. The TPPs most often are fintech or fintech-related start-ups like mobile banking apps
The information is exchanged through API’s with the help of Data aggregators like Plaid.
PSD2 regulation in UK forced UK’s nine biggest banks — HSBC, Barclays, RBS, Santander, Bank of Ireland, Allied Irish Bank, Danske, Lloyds and Nationwide — to release their data in a secure, standardized form, so that it can be shared more easily between authorized organizations online.
The Three distinct uses cases of Open Banking
- Account management
If you’ve got accounts with multiple different banks, investment accounts, loans, then you have to look at them separately, because the banks’ systems are resolutely incompatible. Open Banking will let you see them at the same time, which should make it easier to manage money.
Ex : Mint, Personal Finance are some of the examples Account Management applications(some might argue Mint is an example of Open API and not Open Banking)
2. Lending
Open banking helps lenders by providing real time transaction data , the lender gets a trustful source of up-to-date information without any option for the borrower to manipulate the record, this helps to reduce fraud and quicker decision making
Ex: Algaoan (Algoan analyzes and enriches the transactional data (retrieved through Open Banking), and runs a set of ML (Machine Learning) algorithms to evaluate and assess a person’s financial behavior. By doing so, Algoan is able to better assess the risk when it comes to granting and monitoring loans.)
Banking as platform:
The Bank becomes core platform and third parties build apps and functionalities on the core platform.
In this business model, the bank is a net consumer of partner APIs and open data — aggregating its traditional services with digital and new services from third-party partners. This model is suitable for banks that want to rapidly offer new services or expand in a new market in cooperation with ecosystem partners. The Bank offers the core Banking products and third party providers built on the top of Core Banking OS.
source:https://bankingblog.accenture.com/wp-content/uploads/2020/09/Banking-as-Platform-vs-Service.jpg
Banking as Service
Banking as a Service is the act of taking bank functionality as a whole, compartmentalizing it, then individually offering each function to non-financial companies.
Like other “as a Service” models, BaaS uses mainly application programming interfaces (APIs) to provide connectivity with its users. Since the providing bank has all of the regulatory permissions to offer banking services, BaaS users can integrate them without having to go through burdensome regulations themselves.
Together, these factors enable non-financial companies to build new products using banking services such as deposits, money transfer, payments, currency exchange, lending, and more.
source:BaaS.pdf (bank-as-a-service.com)
Mercury : is the brand and provides the user interface Brand | Provider.
Synapse provides many of the core capabilities. It is a special type of “regulated product API provider” that partners with regulated licence holders that we cover in depth in this report. Provider
Evolve provides the underlying deposit accounts and license / sponsorship, but it also provides some of the compliance capabilities. License holder | Provider
I will be expanding on Baas in a different article.
Overall Open Banking, Microservices architecture is Bringing changes to the Banking world.
Legacy platforms are changing to SAAS model and end customer is the winner.
