Outdated APIs threaten to hold back open banking in Europe

While open banking has made considerable progress in Europe over recent years, its promise of interoperability through data-sharing has fallen short.

Open banking is meant to facilitate and standardize the sharing of bank account data with third parties such as fintechs, and is often accomplished through the use of application programming interfaces, or APIs. But banks and fintechs across the continent are challenged by the sheer complexity and fragmentation of open banking APIs.

One major hurdle is that many of the implementations that pre-date the second Payment Services Directive (PSD2), the European regulation behind open banking, are outdated compared to modern APIs. For example, some APIs have inefficiencies such as extra steps for user authentication.

“Right now, the thing that is bothering most of the merchants is that not all the APIs which banks put on the open banking infrastructure are ready for the real world throughputs they’re seeing," said Vladimir Pintea, head of open banking at the fintech Salt Edge, which has offices in the U.K. and Moldova. "Imagine a big network trying to sell subscriptions, and they have thousands of customers on their platform paying through different banks, but the APIs are limited to 5-10 requests per second, so you get stuck.”

Vladimir Pintea, Salt Edge
"Imagine a big network trying to sell subscriptions, and they have thousands of customers on their platform paying through different banks, but the APIs are limited to 5-10 requests per second, so you get stuck," said Vladimir Pintea, head of open banking at Salt Edge.

These challenges have been compounded by a lack of harmony in transaction processing between various European banks, according to Nikita Septucha, vice president of technical sales and implementations at open banking payments platform provider Token. Septucha has identified ongoing problems with network stability — affecting the ability of customers to log into authentication pages — and varying cut-off dates and times for processing payments.

“In open banking, it makes it complicated if you have fragmentation,” said Septucha. “This is the number one issue because the whole idea is for account-to-account payments to overtake credit card payments, debit card payments, and at some point disintermediate them.”

Europe may be able to follow a model that has worked in the U.K., where around 4 million consumers and businesses use some form of open banking-enabled product, according to the Open Banking Implementation Entity (OBIE).

The OBIE is a company formed by the U.K.’s Competition and Markets Authority to implement Open Banking by creating standards for APIs, security, and messaging, for the country’s largest banks to follow. Some predict that a single pan-European Open Banking API standard could help achieve similar results across the whole continent.

“At the moment it gets left to the technical service providers to interpret each bank’s implementation of the APIs, and now it is time for us to move faster towards a single pan-European standard,” said Iain McDougall, chief commercial officer at Yapily, a fintech which focuses on API integrations for Open Banking.

“I think it’s entirely possible, if you think about the various ISO standards for communication between financial institutions. But we also have to be careful not to jump too soon to a single way of doing things, in case we stifle innovation and competition in the market," McDougall said.

One of the major hurdles with introducing a pan-European standard is that major banks have already invested millions of their resources and money into building the existing APIs, but McDougall suggests that more could be done to convince banks to get on board with open banking.

“Like any industry that has been born through a regulatory mandate, there do need to be attractive commercial opportunities for the traditional existing players,” McDougall said. “As we start to think about pan-European standards and standards bodies, we certainly do need to be considering what those opportunities are going to be for the large incumbent banks, so they have incentive and motivation to participate more actively in the adoption of open banking."

One example could be to use API-based services to generate revenue, McDougall said. In this way, banks are "not just operating in a world where they’re having open banking done to them, but actually seeing that there’s scope for opportunity for them.”

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