• Alex Reddish, Managing Director of Payments and Infrastructure Orchestrator at Tribe Payments


• 12.07.2024 01:00 pm
#banking #openbanking #transactions

Open Banking payments transaction values are expected to exceed $330 billion worldwide by 2027, up from $57 billion in 2023. But the fact is that the vast majority of Open Banking transactions are confined within national borders. To make global Open Banking, global interoperability must become a reality.

Interoperability is vital in ensuring that the patchwork of systems run by different banks, fintechs and third-party players can all talk to each other, exchange data securely using a common standard, and allow customers to view all of their financial data easily, no matter who their bank or service provider is. 

To get Open Banking working across borders is fraught with difficulties, but there are some exceptions. The Asia-Pacific region stands out, with India’s groundbreaking Unified Payments Interface (UPI) becoming interoperable with other Asia-Pacific payment systems including those of Singapore, Thailand, and Malaysia. During 2024, UPI linked up with Google Pay to enable international payments, and France’s Lyra to enable acceptance of UPI payments in France. 

But elsewhere, the vision of interoperable Open Banking has yet to be fully realised. Other regions will need to develop common rules, standards, and the technical building blocks to bring it to life. 

Achieving Open Banking interoperability requires collective efforts

A key component of Open Banking is the ability for authorised third parties to access account information and to initiate payments with customer consent. Banks can do this in two ways: through their existing customer interfaces or through dedicated APIs. But there are no standardised APIs – it’s been left to players themselves to develop their own interfaces. While there have been several regional standardisation efforts, APIs are still widely fragmented, making interoperability difficult to achieve. 

Interoperability challenges are not simple to overcome, but nor are they insurmountable. It may be difficult to ensure regional or global interoperability without regulatory intervention at a national level first. Right now, most Open Banking markets adhere to local standards. Singapore, whose regulator was the first in the region to set out a framework for Open Banking in 2016, has subsequently enjoyed high adoption of APIs, as have South Korea and Hong Kong which took similar approaches. Australia has taken a regulator-led approach with its Customer Data Right mandating financial institutions to adopt Open Banking. In Europe, with its long-established harmonised legal frameworks like PSD2 (and soon PSD3), national bank and third-party licenses are recognised across member states. 

Successful Open Banking implementations happen when financial institutions and third-party players collaborate under the auspices of regulatory input. To make interoperability work on a global level, we need regulators in different countries to learn from each other, share best practices, and invite Open Banking entities and standards bodies like ISO to work together too.