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What Countries Allow An Open-Banking System?

why countries allow open banking system

With technological advancement, more people are adopting new digital innovations, more so where these innovations are safe, convenient, and easy. This has changed all spheres of life, including how consumers shop, bank, and pay. 

The transition to digital channels has seen e-commerce adopt online banking, with developed markets like North America and the UK recording 75 to 80% of shoppers transacting online. Open banking, a new and innovative payment system, is witnessing much growth. But what countries allow an open-banking system? 

Want to learn what is an open banking payment solution? Then join us and continue reading below. 

Open Banking: Definition 

Open banking is generally a safe and secure way for shoppers to give service providers or merchants access to their financial information, after which they can make direct transfers from the customer's account using a third-party service provider. 

It is a practice that enables third-party providers (TPPs) to access customers' financial information via Application Programming Interfaces (APIs). However, this can only be done if the customer agrees. The system also enables customers to determine the information available to the TPP and the duration of withdrawal. 

The Appeal Of Open Banking To Consumers 

Consumers are flocking to open banking because of its many benefits, including: 

• Speed: Open banking payments are fast and efficient. When instant payment capacities are used, they enable instant money transfers. This is helpful for shoppers looking for instant solutions such as buying a travel ticket, downloading mobile entertainment, etc. 

• Simplicity: An open banking system is simple and efficient. Customers need only to identify themselves once and grant the open banking payment service permission to make a future withdrawal, and it is done for the duration. Besides, it does not require the entry of card details, nor would you be asked to provide further credentials. 

• Safety And Security: Customers everywhere feel safer when using familiar, trusted payment options. And since an open banking system allows customers to make payments through their bank account using the regular bank login, they feel safe and secure using the payment system. 

• New Products And Services: Open banking creates room for endless possibilities for product innovations. Customers can benefit from open banking loans, while for businesses, it makes business operations easier and opens up new markets. 

• Better Control Of Data: Traditional banking systems limit a customer's choice of what the website or app offers, but not for open banking systems do. It gives customers better control over their financial data and provides opportunities for money management. 

Countries Adopting Open Banking Systems 

Many countries worldwide (more than 50 countries) have begun their own Open Banking, but some have more advanced standards, regulations, and better implementation than others. Here is a list of some regions and where they are at: 

The Leaders: Europe And The UK 

Open banking enjoys immense support in Europe; the region is a front-runner with regard to the banking system. While its success in the region can be attributed to legislative backing, it is also because of the drive for innovation in some developed countries. 

For instance, Sweden is leading the emergence of fintech and is thus pushing towards debit payment instead of credit. The UK is another front runner; its fast payment structure which has been on for many decades has helped to push the use of Open Banking payment methods. 

The Growers: Asia Pacific, Canada, Latin America 

Countries such as Brazil, Mexico, and Canada, while not being industry leaders, are taking definite steps to get legislation to push Open Banking. However, each country is going about it differently. While Brazil uses a gradual approach, Canada aims to feature payment initiation in its Open Banking remit. Brazil has released its regulations, allowing authorized banks and financial institutions to share customers’ data upon their acceptance. 

There is also a positive view of Open Banking, and it is already gaining wide acceptance. For example, a survey done by Accenture revealed that 43% of big companies and 39% of SMEs already use Open Banking platforms. 

The Followers: United States And Africa 

The US has more complex banking legislation owing to the state-controlled financial and legal system. Regardless, many financial institutions are already developing API-based services via collaborations. Hence, although Open Banking isn't being driven by regulation in the United States, it’s being driven by financial institutions as they recognize its benefits for both businesses and customers. 

Africa, on the other hand, is just starting to develop Open Banking initiatives. However, some countries within the continent are already adopting the system to solve the region's huge financial exclusion. The system also offers the populace an opportunity to improve their financial well-being. 

The Bottom Line On Open Banking Systems

It is clear that there is no one-size-fits-all structure across the world with the Open Banking system. While some regions have well-structured and developed open banking systems, others do not. And when some provide standard APIs, others require a direct connection between the provider and the bank. One thing is clear though, the Open Banking system is here to stay and will only improve with time.