Open Banking

Digital transformation has started to show its effects in every aspect of our lives. It even helped new business models to emerge. Integrating traditional methods into technological environments with the help of digital transformation saves us from many painful processes.

Technology provides both us as individuals and organizations with great opportunities in order to get the highest efficiency from the services we use. With the digitalization movements in the banking world, great steps have been taken to put the services offered to customers into practice in the most efficient way and to provide mutual benefit between the organization and the customer. The concept of FinTech (Financial Technology), which entered our lives a few years ago and whose name we have begun to hear often, is exactly what this is talking about. To put it briefly, Fintech is the financial industry where financial services are developed by utilizing technology.

The developments in the field of fintech have deeply affected the functioning of many processes, allowing us to meet new concepts and business models in the finance sector. Open Banking is one of them. Open Banking is the sharing of customer data with third party providers with the consent of the customers.

Open banking is the provision of personalized service by using data generated within the framework of each transaction performed on the customer's account such as expenditures, credit usage information, paid invoices, the customer's budget, the product, service or services that the customer spends the most. It is aimed to provide mutual benefit to customers, banks and third party providers. Thanks to open banking, customers find the opportunity to easily access the most suitable choice for them by comparing various financial services and products. In addition, individuals with accounts in more than one bank can access all their financial information through a single application instead of using different interfaces for each bank. This ease of access provided to the customer makes transactions much faster and easier, allowing to keep customer satisfaction at the highest level.

When banks compare the customer data they collect with the data collected from other institutions, they encounter a more realistic picture of the customer's choices, and thus they have the opportunity to better meet customer expectations At the same time, the bridge established between third party providers and banks has provided a very important environment for the development of services and products tailored to the customer.

Banks, which have succeeded in creating the necessary infrastructure and interface by keeping up with the digital transformation, have become an important pillar of this great and innovative change in the financial world. Thanks to the innovations that come with open banking applications, customers have been introduced to many new transactions in addition to conventional banking transactions such as money withdrawal, deposit and loan transactionsOffering more personalized services and products to customers with open banking activities increases customer satisfaction and strengthens the bank-customer relationship; At the same time, innovative services and experiences offered to customers with open banking ensure that the relationship is kept dynamic. With the development of the financial services market in this way, the customer is provided with ease of access to a large extent.

APIs (Application Programming Interface) developed by banks for this application are codes and protocols that enable different platforms to communicate with each otherAPIs, which are the cornerstone of the relationship between banks and third-party providers, are interfaces with which different software can interact with each other and have greatly facilitated and improved open banking applications. Due to the data collected in an interface with APIs, the competitive environment between banks paves the way for better performance and more innovative solution proposals.

The first state to switch to the open banking model was the United Kingdom, when nine banks came together under the name of 'Open Banking Implementation Entity (OBIE)' in 2016. According to OBIE's data, 118 institutions have obtained Open Banking licenses after 15 months. In addition to the nine big banks, known as CMA9, which are mandated to participate in the system, 40 banks have been included in OBIE by complying with these standards.

The following statement that is in the annual report published by OBIE for 2020 shows that small businesses also get positive results from the open banking model: “OBIE undertook the SME Financial Landscape research to measure the impact of open banking solutions on the small business community. The research, published in December, highlighted that an increasing proportion of SMEs (around 50% of those surveyed) reported adopting open banking solutions during the pandemic..”. In the same report, as we enter 2021, more than 3 million people and businesses in the UK are using open banking. This proves the potential that open banking holds for the innovative solutions for future applications that are yet to come

While the COVID-19 epidemic, which affected our lives in December 2019, caused great damage to the economy of almost every country in the world, it is foreseen to provide solutions suitable for the financial needs of individuals thanks to the ease of access to financial resources brought by open banking and the collected data. In the UK, it is planned to assist 5 million self-employed people affected by the COVID-19 crisis in light of open banking practices.

Thanks to open banking, all of our financial data has been moved to a compact application on our phone from the pages of thick black-lined notebooks where financial data were kept in the past. All of our expenses, statements, bill payments, loan payments and many other financial data that need to be stored are now available in one place and can be processed without any effort.

Open banking practices in Turkey have been subject to certain regulations in the Eleventh Development Plan published in July 2019, with the decision “Legislation will be aligned with EU Payment Services Directive 2 in order to strengthen the open banking legal infrastructure”. “The Regulation on Information Systems and Electronic Banking Services of Banks', which defines the concept of open banking, entered into force on July 1, 2020, and open banking took its place in Turkish legislation for the first time. This regulation, which defines open banking, did not clearly delineate the boundaries of the practice, and authorized the Banking Regulation and Supervision Agency for future regulations on this subject.

The banks in our country are still in the process of harmonization and the transition to open banking application continues at the regulation stage. Having opened its API portal in 2016, Akbank collaborated with many business partners over this software, and this development became an important milestone in our transition period. Turkey's first and only open banking application, TekCep, offered by İşbank, has enabled customers to view all their financial data via İşCep. According to the data in the integrated report published by İşbank in 2020, TekCep serves 1500 customers.

Since the boundaries of the technical standards and application procedures of open banking applications in our country are not clearly defined, concrete examples are limited. However, it is possible to say that we have started to see ahead in this regard with the definition of the said regulation into the legislation. We can say that in the light of the regulations to be made by the BRSA, more concrete and accelerated applications are expected in the near future.

To summarize briefly, the tracking of financial transactions has become tremendously easier with open banking applications. Customers who carry out their transactions through a single platform can benefit from many services by sharing their data with banks and third party providers as a result of the transactions they perform. In the light of the collected data, financial services tailored to the customer profile create mutual satisfaction between banks and customers. Fintechs, while acting as a bridge between banks and third party providers, have the opportunity to improve their services and products by blending financial data and other customer data. At the same time, the competitive environment created by collecting all bank data in a single environment enables better services to be developed. It is an undeniable fact that open banking benefits all parties. However, since the foundation of every financial institution is based on mutual trust, institutions that implement open banking also need to provide a strict follow-up by making various regulations in order to maintain this dynamic.

In the light of all the benefits and innovations brought by open banking, we can say that this service model has come a long way in the financial world. Because, moving away from traditional methods and opening the doors of a technology based business model contains key clues about the future of banking.