Open banking rings a bell for anyone in the payments industry, yet tangible use cases and how this is going to benefit the payments industry or the consumer is not clear yet. With Mastercards acquisition of Aiia, we’ll explain to you exactly how Mastercards open banking strategy works and how disruptive its nature is.
Mastercard is clearly aware of the potential of open banking for some time now, this is projected by their recent open banking investments and acquisitions.
At the end of the day, it is Mastercard’s mission to provide everybody access to the digital economy, and open banking happens to play a vital role in that.
Aiia, formerly known as Nordic API Gateway, was founded in 2011, has more than 2,900 connected banks across Europe connected at this moment, facilitates access to financial data and enables seamless payments.
Mastercard is creating an Open Banking product suite including Mastercard Connect, which offers access to the multiple API standards out there via one hub. And if you look back at the acquisition of Finicity, the North American open banking platform, it becomes evident that Mastercard is on a journey to expand its open banking network into Europe by acquiring Aiia.
When it comes to Europe, the UK is a frontrunner in open banking thanks to its regulatory-driven approach that sets early deadlines for its biggest banks to build the infrastructure needed. The UK’s nine largest banks also funded a central platform that notes more than 3 million users of the UK’s Open Banking system with more than 700 companies in the pipeline.
The EU’s open banking approach is also focused on regulation in the form of PSD2. However, while this dictates that banks must create the APIs to interact with third parties, there is unfortunately no specific guidance on how to do it. As a result, open banking is more successful in certain countries than others.
The first PSD was made public all the way back in 2007 but execution and enforcement have been a bumpy ride ever since. But what makes it so difficult to fully implement this directive?
To begin with, there is no service level agreement available from API providers, forcing Banks to temporarily disable a part or entire sets of APIs due to scheduled or unscheduled maintenance work, quite often even without advance notification.
In most cases, open banking API specifications reference several authentication methods. However, banks are also free to choose what authentication methods they prefer to support. This means that businesses cannot build a unified user journey easily due to differences in the user authentication journey.
It is evident that Aiia has a strong vision on creating a high quality network based on PSD2 standards, this fits just perfectly with Mastercards network approach. Our experts believe that this will have a positive impact on the growth and quality of service of Open Banking and next Open Finance services. That being said there are many challenges in PSD2 to navigate but we are confident that we are on the right track.
What do you think is key for open banking to reach its full potential?
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