International Research Journal of Engineering and Technology (IRJET)
e-ISSN: 2395-0056
Volume: 11 Issue: 03 | Mar 2024
p-ISSN: 2395-0072
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Role of APIs for the future of Open banking in the USA Prasenjit Banerjee Technical Architect Director at Salesforce, USA ---------------------------------------------------------------------***--------------------------------------------------------------------to how banks and other financial institutions exchange Abstract - The term Open Banking as we know it today
data. The existing technologies of data exchange between banks and financial institutions were minimal. Banks would operate as highly regulated closed-door institutions with minimal access to open payments. wherever they were open, they lacked the safety net of securely accessing personal identifying data and transmitting through the network in an encrypted way [2]. The PSD2 was followed by the introduction of GDPR by the EU parliament in 2014.
originated from the regulations put by the UK and EU to securely allow banks and financial institutions to exchange customer data and information. While the EU came up with distinct laws that regulate the practices of open banking with the PSD2 and the GDPR, the US has yet to come up with a formalized set of laws on practices, there is a lot of momentum in this space with the CFPB is expected to propose a set of guidelines on the consumer financial data rights, which is a step in that direction. The market in the US however is more than ripe to unleash the power of Open banking and it is at the cusp of breaking free with a plethora of fintech startups already established in their space, driving significant volume of financial transactions through their platforms which is nothing but open banking.
The introduction of GDPR created a paradigm shift in how banks and financial institutions would collect personal identifiable data, store them, and share them with other financial institutions. While it not only gave consumers the right to control what data is being collected by the financial institutions, but it also firmly laid out the consequences of the breach of data privacy practices [3]. While it was a big change in all the processes involved by the financial institutions to collect, process and store and share data , it created a foundation for a stable platform which the consumers can trust and laid the groundwork for establishing solid data governance practices to be created and adopted by financial institutions.
The traditional financial services companies are now at a varying level of maturity on how to leverage the transformative power of open banking to their advantage. Instead of simply competing head-to-head with their fintech counterparts in terms of service offerings Briones et al [1]. This paper explores an approach as to how traditional financial institutions, including banks and insurance companies can leverage a new technological approach to build their open banking capabilities that will place them in the driver's seat to reap all the benefits that the new era of technology powered services has to offer.
2. Challenges with the existing technologies So with the introductions of regulatory forces to govern the use of data, financial institutions has taken myriad different ways to make data available to third party institutions and other providers mostly using outdated approaches that were simply not ready to cope up with the challenges of building capabilities within large organizations that allows to safely and securely expose data to third party services securely and stand the test of scale and complexity[4].
Key Words: Open Banking, open Insurance, Open Finance, APIs, fintech, BAAS, CFPB, GDPR, PSD2 1.INTRODUCTION “Open banking is a banking practice that provides thirdparty financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs)” Investopedia. PSD2 was introduced in 2013. PSD2 is a European regulation for electronic payment services. It seeks to make payments more secure in Europe, boost innovation and help banking services adapt to new technologies. - BBVA2
There were common protocols that existed that allowed computer systems to share data securely over internet , but no comprehensive tooling was available to conceptualize these mere protocols into comprehensive frameworks that can enable the building of such webservices as capabilities that banks and financial institutions can leverage to build web-services as buildingblocks of capabilities that can be built incrementally with fundamental services serving as capabilities that can be used internally and externally.
Soon after the introduction of PSD2, the new set of regulations progressively took effect from the beginning of Jan 2018. These regulations created a fundamental shift as
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