The voluntary introduction of Open Banking is a huge opportunity for Swiss banks to cultivate new ecosystems and monetise digital value chains. This requires will and strategy; but above all, a ready-to-use, secure software solution. Like the one from Ergon.
BBVA is the second largest bank in Spain and one of the largest banks in Latin America. Since the end of 2019, its services have been available for the first time via the platform of a third-party provider. For example, Uber drivers will be able to use the mobility provider's app to book their earnings on a special Mastercard debit card within minutes - even if they do not have a bank account. They also have access to a platform that offers them credit and financial benefits, such as discounts or reimbursements for petrol purchases. The use case is part of BBVA's open banking strategy. Within this framework, it provides third parties with interfaces to the core banking system so that a digital ecosystem can emerge from which everyone benefits.
The EU has stipulated through the Payment Services Directive PSD2 that banks must provide such interfaces for banking services. The directive has been in force since 2019. This makes it possible for third-party providers to provide financial services for their own clientele without being in possession of a banking licence. The potential of this approach is enormous. Irrespective of the industry, there has been a trend for several years to break up value chains in order to become more small-scale, more diverse and more tailored. This creates digital ecosystems, which are considered a large growth market, across industry and national borders. However, only under one condition: an efficient - digital - exchange of information between the participants must be possible. Only in such a digital ecosystem can the partners involved contribute their respective strengths to create new solutions: simpler, better and more user-friendly than they were before.
Open Banking takes off in Europe
A look at the UK provides an idea of how such ecosystems grow. The country was one of the first to implement PSD2 in 2018. Development was naturally slow at first, but by the end of 2020, the number of successful calls to such open banking interfaces had already risen to more than 840 million in October 2021. Another figure, published by the UK Open Banking Implementation Entity (OBIE), illustrates the dramatic growth even more vividly: between February and August 2021, there were eleven million payments via open banking interfaces, compared to only 700 000 in the whole of 2020.
The voluntary introduction of Open Banking contributes to the sustainable co-design of our financial market. The courage of such digital pioneers will probably be rewarded in the future.
Simon Kauth, Chief Product Officer, Finnova
OpenBankingProject.ch as a pioneer
In Switzerland, there is no mandatory regulatory requirement for open banking. Instead, the country relies on the banks to take the corresponding steps towards openness on their own initiative. There are several initiatives that want to put this vision into practice. Many of these initiatives are provider-specific, some are provider-independent or open. Ergon started early to advocate for open standards. Together with the Business Engineering Institute St.Gallen (BEI) and technology companies, the OpenBankingProject.ch was therefore created. Its members are of the opinion that only with a cooperative, open approach can the challenges be effectively mastered in order to ultimately be able to successfully exploit the opportunities that present themselves.
The behaviour and requirements of users are changing dramatically as a result of digitalisation. They need information on creditworthiness, transactions or investments not only when they are standing directly in front of the bank branch, but also much more frequently due to bank-independent payment services. Against this background, it is worthwhile for banks to always be present in these processes as well.
Ergon makes open banking dreams come true
Ergon delivers a ready-to-use solution that can be used to realise secure open banking. Those who use it can help shape the Swiss financial market and position themselves as digital pioneers. The central element is an interface gateway with which banks can grant third-party providers defined direct access to the processing IT systems. The consensus administration manages the access rights. For example, it can be defined that a third-party provider may only access a specific current account for the processing of a service, not the other accounts or the securities account. The access and consensus management of the interfaces is based on the security solution developed by Ergon, the Airlock Secure Access Hub. This includes a web access firewall, identity access management and two-factor authentication.
The interface gateway is PSD2-compliant (NextGenPSD2) according to the specifications of the Berlin Group, a standardisation body in Germany from the IT and banking industry. The Berlin Group has also already signalled that the interface solution of the OpenBankingProject.ch under the name Swiss NextGen API will be recognised as a Swiss standard as soon as the first bank offers services based on it.
Ergon provides a sandbox for the Swiss NextGen API in order to get to know the implemented open banking solution or the functionality of the NextGenAPI. This sandbox can be used to simulate a third-party provider retrieving account information from customers and initiating payment orders on their behalf.
Smart Open Banking allows all partners involved to be brought in with a strength, quality and user-friendliness that was not possible before.
Adrian Berger, MD Finance & Telecom Solutions, Member of the Executive Board, Ergon
Open Banking as a Service
The interface gateway can be operated in the bank's own data centre or as a service. If the core banking system comes from Finnova, the interface solution can be obtained as such a service from the cloud. In the first use case, Finnova has been providing corresponding services to a Liechtenstein bank since spring 2021, with interfaces based on Ergon's technology. Liechtenstein belongs to the European Economic Area and must therefore also implement the mandatory requirements of PSD2. The first two services were a payment initiation service and an account information service, i.e. two central business processes in Open Banking. Finnova provides these services on the basis of the Finnova Digital Banking Backbone and intends to continuously expand this offering with additional services.
Open banking is the future
The value chains of banks will change. Open banking is the future. Regulatory requirements in certain economic areas and the activities of individual banks that see themselves as pioneers are driving this development. Ultimately, these changes do not stop at any market. The Swiss banks have been given the freedom by the legislator to follow a market-based path into open banking. They can therefore determine their own approach to a large extent. A truly open approach offers the opportunity to fully exploit the potential of future financial ecosystems.
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