New legislation has been rolled out across Europe with the aim of increasing competition in the financial services market – and America is taking note.

‘Open Banking’ legislation forces the big financial institutions who dominated the market place to share data belonging to businesses and individuals with their competitors. This happens only when the customer has requested it – and is designed to help the customer to get a better deal when managing their money.

Using these Open Banking provisions, third-party financial institutions can access things such as balances, transaction information, spending details, borrowing and overdraft use. It means those institutions can then analyze the data and use it to offer linked services and offers. Only specific data that is required to enable a particular service is shared and only when the customer has consented. That consent can be withdrawn at any time.

Across Europe, legislation – in the form of the Second Payment Services Directive (PSD2) – is now in place to require banks to engage with Open Banking and enable customers to consent to the sharing of their data in this way and sign up for services that require it.

Though the concept of financial firms sharing customer data to enable products has been around for a while in Europe and the US, the European Union’s PSD2 legislation has arguably been a driver in making the way it is done more secure and raising the profile of the opportunities it creates across the globe.

Open Banking is certainly allowing individuals and businesses to access a wider variety of financial services.

Mastercard firm Finicity, with corporate headquarters in Utah, is an established Open Banking provider and recently announced a data access agreement with Brex, a finance management system for businesses.

Finicity CEO and co-founder Steve Smith said: “Finicity has been collaborating in earnest with financial institutions in signing data access agreements with banks and other traditional financial institutions.

“With our agreement with Brex, we are now extending our approach to fintechs. We look forward to working with Brex in pioneering the way financial data is utilized to help businesses grow and achieve their goals.”

The growth of Open Banking is undeniable.

In the UK alone, more than two million customers were said to be accessing Open Banking services by September 2020, according to the Open Banking Implementation Entity (OBIE).

Apps and services using Open Banking have made a wide variety of business banking services easier or more affordable.

Open Banking makes it feasible for a service provider to create an app that links directly to a business account to assess how much tax is payable and to move those funds into a tax account, for example.

In one of its simplest forms, Open Banking allows accountants, financial personnel, and business managers to set up and access a dashboard where accounts held across a multitude of different institutions can be viewed and managed in one place.

Disrupter services are also forcing intensified competition on things like fees and charges for overseas spending and transaction costs.

One aspect of Open Banking allows merchants to tap into new streamlined options for accepting payments and making refunds directly between customer accounts without the need for credit or debit cards.

Kieran Hines, Senior Banking Analyst at financial services technology research, advisory and consulting firm Celent, said: “Open Banking on the face of it is a quite alien concept. If you say to people ‘there is this great new concept where third parties can access your bank account information’, people are naturally quite hesitant and tend to reject the concept.

“What we will see happening, and to some extent is already happening, is that people will engage with Open Banking services because they provide value. Customers will be less and less aware of the realities of what happens to power these services and more interested in taking advantage of what they can offer.

“In the same way that people don’t need to know how an ATM works in order to use it. What we need to know with Open Banking is ‘if I provide consent to this mobile app to see my data, they can give me something better than I have now’.

“Over time, Open Banking will become something that is just part of the experience customers have and they’ll be aware of how that can be used to improve the services they receive.”