How to utilize Open Banking as fintech

by James · January 25, 2023

As Open Banking continues to change, fintechs must keep users’ data secure at all costs. Conor TiernanUnited Kingdom Lead for Klarna Kosma, discusses how PSD2 can tackle this and what is in store for Open Banking in the following year.

Fintechs are leveraging open banking to improve customer experiences and streamline outdated banking processes, sparking a revolution in how consumers use financial services.

Revenues in the global open banking sector are expected to top USD 128 billion by 2030, up from USD 16.1 billion in 2021. Much of this growth is driven by innovative fintech companies implementing new strategies and technologies in the sector.

With just a few lines of code, fintechs improve conversions, simplify processes and access a global network of regulated banks.

Table of Contents

Open banking services 101

Open Banking enables API-based connections between banks/account providers and third-party providers (TPPs), with the aim of increasing security, innovation and competition across the European banking sector. The goal is to offer end customers control and transparency over who can access their financial information and how they intend to use it.

After reviewing the concentration of power of large European banks and exploring new ways to encourage innovation, the European Commission adopted the second Payment Services Directive (PSD2) in 2018.

How PSD2 is changing banking

Open Banking providers have embraced PSD2 to access customer data from multiple banks and provide account-to-account payments through a single protocol. This helps TPPs build secure, highly accessible and user-friendly services, without facing the same barriers to entry that previously stifled banking innovation. Instead of entering into individual agreements with all banks in Europe, TPPs can use open banking providers as a central node between banks, fintechs and end consumers.

Consumer benefit: the cash/money in the bank is yours, meaning you control it; the data related to your bank account is now also in your control, thanks to open banking services. Consumers are at the center of their own financial universe and want the power.

Open banking services

Under the umbrella of Open Banking, there is a wide range of services that can be divided into two main categories:

Bank data (Account information). TPPs can securely retrieve account details, opening the door to a number of value-added features for customers, such as sharing financial information with a tailored online mortgage broker, or managing multiple bank accounts through a dedicated dashboard.

Consumer benefit: Take control of your own bank data and hand them over.

Bank payments (Payment initiation). Open Banking allows users to pay directly from their bank account, meaning TPPs can process payments to anyone with an approved account. Instead of complicating the customer conversion process with account creation and asking for bank details, open bank payments provide a seamless onboarding experience.

Consumer benefit: You will never need to enter your card details again – searching for your card will be a thing of the past.

All of these services can be accessed through a single API, making integration simple.

Level the playing field with APIs

TPPs access bank account data through APIs (application program interfaces). An API is a way for computers to communicate in a standardized way. Just as e-commerce sites use APIs to share shipping information with couriers and streaming services use APIs to distribute content through approved devices, TPPs can leverage APIs to seamlessly retrieve information from banks with end-to-end encryption.

This is where Open Banking platform providers such as Klarna Kosma come into the picture. By providing access to thousands of banks through one API, as well as a host of other open banking services, TPP benefits from a lower barrier to entry, helping them build new value propositions while minimizing regulatory obligations and reducing legal overhead.

What’s next for open banking?

The next steps will see these principles extend beyond banking, to create open standards for finance, data and digital identity. This will introduce a wave of innovation to sectors such as telecom, utilities, pensions, investments and others.

Kosma is involved in all these future streams and we are excited to lead the change in building a highly connected financial ecosystem that fuels innovation and empowers smaller financial institutions.

Learn more or check out Kosma’s playground

About Conor Tiernan

Conor Tierman is the UK manager of Klarna Kosma. As a qualified financial advisor, he has spent more than 6 years understanding the UK market and playing an important role in the growth of the payments landscape. He currently sits on the board of Sofort UK and is a Chartered Member of the Chartered Institute for Securities & Investment. Conor’s role is to support the growth of Fintechs, banks, lenders or SMEs through Open Banking.

About Klarna Kosma

Klarna Kosma makes game-changing ideas powerfully real. Klarna Kosma was launched in 2022 and is Klarna’s financial technology platform for banks, fintechs and innovative sellers. Our proven and mature platform provides essential connectivity to a growing network of more than 15,000 banks in 24 countries through a single Open Banking API. We process more than 200 million transactions a year and are the most comprehensive Open Banking platform in the world. For more information, visit www.kosma.com.