The world of banking is ever-changing thanks to today’s technology and advancing systems. That doesn’t mean, however, that modern consumers are always ready to adopt and use these new systems or technologies. There are plenty of sceptics out there, and open banking is no exception to this scepticism. Though the legislation that made open banking possible has been in effect for some years now, open banking is still surrounded by many myths.
Here, you’ll find the most common of them - and why though many believe one or all of these misconceptions, it may be worth thinking again and reconsidering the value that open banking brings to consumers and all other players in the finance industry, such as banks and businesses.
1. Open banking isn’t secure
Open banking was made possible in Europe thanks to PSD2. When this directive was drafted, the data security of consumers was one of the main priorities. Thanks to this, banks developed their own application programming interfaces, or APIs. APIs ensure that third-party providers have safe access to customer account information, so businesses don’t have to be concerned about that aspect of security.
Prior to PSD2, it was popular to use screen scraping methods. This involved customers being asked to share their bank login credentials, allowing a third party to access their financial information to make an online payment. For good reason, this practice is banned in many countries, though there can still be exemptions even in countries where screen scraping is illegal.
One of the ways kevin. helps to ensure security is through payment tokenization. This process replaces sensitive information with tokens, or a unique string of numbers and letters. These numbers cannot be traced to the original data without a specific key, which is always held separately from the token and can’t be accessed by any unauthorised user.
For more information on the security of open banking, read more in our blog post 'Is Open Banking Safe?'.
2. Open banking is bad for banks
Open banking has been looked at as the end of traditional banks, but that isn’t necessarily the case. In fact, it presents banks with a perfect opportunity to adapt to the changing wants and needs of consumers and stay relevant. By using open banking, a bank improves the range of services offered to its customers.
Though open banking has made shifts within the banking industry, it doesn’t need to be seen as negative. Bank customers are given ways to use their accounts more flexibly, and in the way the individual wants to. It opens up new possibilities from the customer perspective.
3. Open banking isn’t ready to go mainstream
The case can certainly be made that it is still early days when it comes to open banking and its widespread use. There are, however, already well-established use cases across various industries, according to The Paypers. Furthermore, the number of open banking users in Europe is expected to grow to 63.8 million in 2024. Open banking is now popular within the retail sector, which kevin. is at the forefront of. A great example of this is Kortryna Group, which owns or manages a variety of e-commerce and retail stores in Finland and the Baltics.
PSD2 became national law for EU member states in 2018, so open banking can still be viewed as in its infancy. Awareness of open banking and the resulting flows have rapidly improved since, increasing overall use. In the UK, month-on-month growth of the number of open banking transactions runs around 10%. Clearly, awareness of the benefits of open banking continues to grow.
4. Open banking means the end of card payments
If you can complete a transaction directly from one bank account to another, will cards still have any usefulness? Since the pandemic, cash usage has declined. But rather than the advent of open banking causing card-based payments to decline, there is evidence that as a whole, digital transactions continue to rise for all forms of payment.
The incumbent method of paying by credit or debit card has still remained high in use. Payments with open banking, however, are becoming a vital addition to any merchant’s payment options mix. Account-to-account (A2A) payments are quickly growing in Europe, and are expected to challenge credit and debit cards’ popularity by 2024.
Businesses who aren’t currently offering A2A payments may want to consider finding a payment infrastructure such as kevin. that can meet the growing consumer demands for this payment option.
kevin. offers the first-of-its-kind A2A POS solution, which means a customer’s e-wallet can connect directly to their bank account. This opens up other opportunities for merchants that previously were not available.
5. Open banking isn’t trusted by consumers
When it comes to security, it’s important to discuss the customer perspective. In open banking, Strong Customer Authentication (SCA) is used, which means more accurate and fraud-proof user authentication for those using open banking.
For a consumer to change their usual payment habits, they must experience something that is better or more convenient to them, or offers other real, additional benefits. With open banking, it’s easy to make payments, quick to complete a transaction and only requires the presence of a mobile phone.
Customer data is not shared without consent when it comes to open banking, and this permission can be revoked. Open banking customers voluntarily agree to share data or information with whomever they choose. That also means their permission can be revoked at will, putting greater control in the hands of individuals.
Opening up to open banking
Since its inception, open banking has altered the competitive landscape of the financial services industry. Its many benefits include lower fees, greater security, higher conversion and acceptance rates and quicker settlements. Though open banking can certainly be thought of as disruptive, that needn’t be a negative - it’s providing greater opportunities for individuals to use their accounts in more flexible, convenient ways, on top of the value banking services already provide.