1. Open Banking in International Context (
Open Banking is similar to Account Aggregator, and in an international context, open banking means
Access to bank account data everywhere
Payments (in some countries)
It is not banking-as-a-service
It provides access to something that had no access. Lars’ categorized the EU use cases as follows
2. Process optimization
2.1 Lending (
Lenders use Open Banking APIs to connect and fetch transactions from their potential customer bank accounts. It helps them to access the bank account data faster. They also get additional data that are not in paper-based or PDF file such as
Location of ATM with every ATM withdrawal transaction. If the withdrawals are near a particular area (say Gambling), it would indicate customer behavior.
Categorization of credit and debit transactions, such as from Debt collection, provides customer behavior information.
2.2 Bank account verification (
Banks use Open Banking to verify the iBAN (International bank account number) is widespread in Germany for making payments via direct debit.
To prevent misuse of iBAN, banks used a one-cent transfer and asked the customer to verify the transaction code to confirm ownership. This takes at least 2 days and cumbersome because of the long iBAN. With Open Banking APIs, the banks can quickly authorize their bank accounts and initiate payments without entering iBAN.
3.1 Multi-banking or Account Aggregator (
The most common use case in Germany (and in Europe) allows customers to view all their bank detail in a single portal. This allows the banks to gain insights about their user, such as other bank accounts and account details. Every bank in the EU provides this feature.
3.2 Bank Account Switching (
The banks find it easy to get a customer to sign up for a new bank account (very little friction) with more straightforward onboarding flows. However, making their bank account customer’s primary account is a challenge.
Banks use Open Banking APIs to connect to their other bank accounts and transfer their data to the new account. Banks look at the different types of transactions, such as recurring payments, subscription (say to phone companies), and help them set up quick direct debits. Similar to multi-banking, every bank in the EU provides this feature.
3.3 Financial Education (
Banks and fintech companies analyze the spending pattern from the bank account transactions and suggest alternatives or ways to improve their spending.
These companies quickly onboarding their customers and use gamification and intelligent notifications to tell customers about the state of their personal finance. It is done in a non-intrusive and understandable way to not feel harassed and feel that the application is actually helping them.
3.4 Comparing Financial Products (
Open Banking APIs provide additional data about transactions that companies use to understand the purpose, such as loan payments or insurance premiums.
Consumers now can quickly see the cheapest or the best product that fits for them. Open Banking APIs make it quick and easy that encourages repeat usage. Companies look up the existing account data and compare different items such as interest rates, fees, and provide them with alternate financial products.
3.5 Finance Management for SMEs (
This is personal finance management for SMEs. An SME maintains multiple bank accounts. With Open Banking APIs, financial leaders will have a single view of their bank accounts. It is hard to decipher bank account transactions and harder to act on it. The software can identify the most critical vendor and customers (based on payment and revenue history). With accounting and invoice tools, much more profound insights into finances can be provided.
4.1 Contract Recognition(
With Open Banking APIs, companies can deduce payments made to different subscriptions or travel insurance payments. Some of these are subscribed a long time ago, and the customer may not remember.
The software will help customers optimize their subscription by suggesting an alternate plan (cheaper ones) or terminating the subscription.
4.2 Insurance (
With Open Banking APIs, insurance tech companies determine customer’s current insurance and suggest a better alternate. From bank transactions, they can identify an item that would require insurance, such as high priced items (bike or LED TV) or international flight ticket (travel insurance).
Open Banking allows insurance tech companies can make it easy for customers to discover insurance products.
4.3 Loyalty Points Management (
Loyalty management is about providing cashback to customers. Companies offer the customer a plastic card to manage their rewards. The customer needs to carry the card and produce it at the time of billing. This will record the transactions, and the company will offer benefits to the customer.
With Open Banking APIs, companies request the customer to share their transaction data. If they detect any transaction with them, then automatically offer rewards. For example, Starbucks can provide regular consumers discounts and increase loyalty if they notice multiple customers’ transactions.
4.4 Emission Tracker (
The Europeans are becoming self-aware of their action, and it’s contributing to the CO2 footprint. With Open Banking APIs, companies provide mobile applications that track spending such as fuel and flight tickets, that impact the CO2 footprint. It allows them to set an emission limit, beyond which any such spending can be blocked.
4.5 Lars’ Favorite, Dating Applications (
Open Banking can go domains it never meant to or is expected to go. For example, a dating app can use Open Banking APIs to assess consumers’ lifestyles and eliminate fake profiles. For example, customers cannot define themselves as healthy and active if transactions indicate that they regularly buy unhealthy foods.
[Video] Lars Markull’s Masterclass in AA Hackathon 2020
Companies Referred in Masterclass
The following companies are mentioned in the masterclass with the link to their websites.