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Tomorrow’s Finance: The Latest Innovations in Open Banking


By Leon Muis, Chief Business Officer at YTS

For the banking sector, standing still is the same as falling behind. Innovation has become the currency on which banking services are built, with new digital initiatives fundamentally altering the customer experience and raising the bar for the industry at large.

As technology takes centre stage, the term ‘challenger bank’ has almost become a misnomer, with the digital-first sector winning an additional 6 million customers worldwide in the latter half of 2019.  The pandemic, while having an all-round devasting impact on the economy, is only likely to have increased this figure, as more consumers seek the frictionless convenience of using digital banking services.

Last year, for the first time ever, digital-first and digital-native banks overtook traditional high street banks. Not in terms of customer numbers, but in terms of customer satisfaction. It’s this demand for a smoother, frictionless and personalised experience that’s driving innovation, and if financial service providers are to stay relevant and competitive, they simply cannot afford to stop expanding their digital capabilities.

As the consumer experience becomes more joined-up and seamless, digitally-minded banks are discovering the benefits of forging open banking partnerships to expand their ecosystem. For example, banks are using ready-made APIs available through third-party providers such as Yolt Technology Services to power Account Information Services (AIS) and gain better customer insights., helping them ‘fit into’ the convenience-driven lives of today’s consumers. This, at its core, is what open banking is all about.

Open for business

Open banking has been a pioneering force in the financial services sector since the UK’s Competition and Markets Authority (CMA) insisted banks give customers the ability to share account data with third-party providers in 2018. It had two overarching objectives: to allow financial service providers to offer faster and smoother consumer experiences and foster competition and innovation. This involves revolutionising everything from payment solutions and budgeting tools, to lending applications and credit evaluations.

One of the most significant ways in which financial services companies are evolving is by tapping into payment initiation services (PIS), account initiation services (AIS), and data enrichment (DE). As such, firms are increasingly looking at where each of these services can add value, and how they might shape the future of the industry as a whole.

Payment Initiation Services (PIS)

Credit card payments have long since been the go-to method for customers to complete their purchases, but as any business will attest to, this comes with some drawbacks. It’s not only expensive, but settlement windows can also delay the transfer of funds. PIS solves this problem, allowing customers to pay vendors directly from their bank accounts while only having to confirm with their bank. This makes payments faster, more secure, more cost-effective and it puts control firmly into customers’ hands.

These benefits have driven PIS to become popular within financial services. Yolt Technology Services’ (YTS) recent Unlock the Value of Open Banking report found that 67% of banks, commercial lenders, investment platforms, PFMs, and retailers, were using PIS, significantly more so than AIS or DE.

Retailers in particular, who stand to gain the most from PIS and the reduced transaction fee costs they bring, look set to incorporate the service into their operations on a wider scale in 2021. YTS’ Unlocking Value report found that over half (56%) of retail companies not yet using open banking systems saying they were strongly considering adoption.

Account Information Services (AIS)

When it comes to lenders assessing credit applications, or banks opening new accounts for customers, time is of the essence. Customers want to be served quickly; the more they’re waiting around for lengthy credit checks, the more likely they are to have a poor experience or even take their custom elsewhere. That’s where AIS comes to the rescue of banks, lenders and other financial service providers.

With it, businesses can build up an accurate picture of customers’ finances – from bank balances and income, to expenses and spending habits – all available instantly, digitally and securely without the need for physical copies. In practice, this can virtually halve the time it takes for a customer to open an account or secure credit on a purchase.

Adoption has been largely successful when it comes to AIS. In November 2020, there were 653 million API calls on AIS connections, mainly instances of people using apps and other websites to use their account information. This number only looks set to grow in 2021, with around 46% of respondents in the Unlock the Value of Open Banking reports stating they were considering adopting open banking technology, or another service like AIS.

Data Enrichment (DE)

In many ways, data enrichment is the next logical step from AIS. It allows businesses to turn the data gathered by AIS into valuable insight that can be used to tailor services and make critical business decisions. The data collected by AIS, such as consumer spending habits, is invaluable when it comes to carrying out credit assessments – but what if businesses could extract even more value from the data? Using data enrichment methods, a business such as a retailer could use this information to predict consumer trends or target products more effectively.

However, despite DE complementing AIS, only 34% of respondents in YTS’ Unlocking Value report stated they use data enrichment services, compared to 57% using AIS. More must be done by open banking advocates and those which have already adopted data enrichment services to highlight the additional benefits it can bring to the business.

Brighter future

It’s these services and more that are laying the foundation for the future of open banking. From mortgage lenders to pension providers, the entire financial sector is collectively raising the bar for customer service through interoperability and the intelligent use of APIs.

And the FCA’s recent call for input on Open Finance suggests the possibility of regulation being brought in, with a common set of principles for financial services to abide by when it comes to things such as API maintenance. This would set a stronger foundation for open finance and help build collaboration in the sector.

The hope for open finance advocates should be that customers will be able to access their financial footprint with the swipe of a thumb in the not-too-distant future, making life easier not just for financial services providers, but for everybody.

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