Open banking is conquering the world, but in Israel there is still a long way to go
Meetings at the bank, standing in line for a banker to deposit paper checks at the branch – the banking world before Corona looks like an old black and white movie.
The conservative banking world, which has not changed for centuries, is today in the midst of a revolution. At the top of the list of changes is Open Banking, that is, the ability of third-party companies to open working interfaces with customers who use the bank’s application. Banks are required to interface with these external companies, enabling them to develop fintech applications for clients or provide them with advanced financial solutions and services.
The open banking revolution is gaining momentum around the world, especially in Europe. According to research firm Nordigen, in 2020 more than 25 million people benefited from the use of open banking services. A survey carried out by Finastra in 2021 confirmed that among banking institutions, 9 out of 10 participants agreed that open banking is important for their organization; 97% of those who already use open banking saw economic value for their business.
The change is happening now because in recent years there have been several events that have resulted in a ‘Big Bang’. The first is the increasingly rapid ability of start-up technology companies to deliver value to their customers. For example, Uber allows drivers who don’t have an Uber account to issue a credit card and allows them to receive payment at the end of each shift without leaving their Uber app. Uber is neither a bank nor an authorized financial institution, due to regulatory and operational overhead costs, but in cooperation with a bank, Uber provides financial banking services. Such a transformation has also been achieved by WeChat, the Chinese social media giant, which has added in-app payment to its platform. Southeast Asian companies Grab and GoJek started as travel platforms and now provide more than 20 financial services to over 300 million users. Second, regulators realized they couldn’t be left behind. For the first time in Europe (UK and EU) and to some extent in Israel, an open bank has been created which requires all banks to allow access to the customer’s account (with their permission of course) and the provision of information alongside applications.
The full implementation of the open banking system in Israel has been delayed for various reasons, mainly regulatory and economic. The potential already realized in dozens of countries will have to wait to be realized. The provisions of the Financial Reporting Services Memorandum were submitted as early as June 2020 but were not received for a second and third reading in Parliament until the end of October of this year. There is no doubt that the lack of a budget for two years also caused delays. The Bank of Israel has done a lot of work defining the Data Interface Model (API) while adopting the Berlin group’s European data model and adapting it to Israel’s banking ecosystem. In 2021, the definitions of personal current accounts and payment services have been completed, and the definitions of credit and securities will be completed in 2022. The big banks have started to build the required infrastructure for open banking, according to the definitions banking.
The development of open banking in Israel faces additional obstacles which must be removed. On the one hand, speeding up the process of granting licensed access to data for FinTech companies. In addition, raising the bar to achieve a higher level of service provided through open banking, for example by enabling business banking. Finally, raising awareness among businesses of the economic potential of open banking, as there are few initiatives in this area compared to other countries.
Open banking is a huge economic opportunity that offers regeneration and the construction of new sources of income for banks and commercial enterprises which can offer banking services in addition to their original portfolio of services. Every effort should be made to eliminate regulatory delays, speed up processes and bring the economy into the era of open banking.
Tal Weiser is the Managing Director of Sales, Global Services International Payments at Finastra