Money is not the only thing banks store in their premises. The other valuables are counted in bytes — or even petabytes, i.e. client data. Everything about customers, from their personal information to incomes, spending, shopping habits, their investments, insurances and so on, is kept in bank databases. And banks are not willing to share these resources with anyone else other than their clients themselves, even if these were the clients who would want their information to be used by a third party. In the EU member states the PSD2 directive will set a new paradigm for banks with open banking API, but not before 2018.

Banks Go Online, Data Remain Locked

For many years the data on customers collected in digital form by banks was available only internally — banking systems were not accessible from the outside and one needed to visit a branch and ask the staff to make an operation on his or her behalf or use special terminals. Things changed when banks went online and their systems, or rather the system frontends — transactional systems, were offered to clients. From now on, customers were able to freely access their data, mainly transaction history, and personally make transfers or other operations anytime, anywhere.

But all of this client information was still locked inside the banking system. Years passed and there were no official ways for other parties to get access to it. Banks were simply reluctant to reveal customer data even if a client requested so and even the open access to this information could be beneficial to banks and other financial institutions.

API vs. Screen Scraping

Today, only in a few countries is it possible for third parties to use client data stored at the bank — of course, with the account owner’s consent. In some cases, like in Germany and the UK, an open, standardized API is or will be available soon, so any interested organization can use it in its applications or services. (The rest of the EU member states have to wait until the open banking API is developed under the PSD2 directive regulations.)

In other countries, for example in the USA, it is possible to use a non-API approach, which is called “screen scraping”; an application logs into the client’s bank account using his or her credentials and mimics user activity in order to get the data it needs. The screen scraping technique is a kind of bypass or work around, and it is recognized as potentially insecure by authorities in some countries. In Poland, for instance, the local Financial Supervision Authority recommended banks not to use any of such solutions, which caused a ridiculous effect: banks can’t benefit from screen scraping, but other parties not regulated by the FSA, e.g. online lenders, still have freedom to use it.

Data for the People!

Why is it important to open the access to client data stored in banks? Because it would open new opportunities for all players on the financial market, banks included. Verification of new clients would be much easier and fast as the whole KYC procedure would be stripped down to logging into a customer bank account and acquiring all necessary personal information that was already verified by the bank. The same applies to credit scoring: no paper documents would be needed since the client’s transaction history would tell everything about incomes, savings, loans, financial status and so on. And the decision can be made within seconds, not hours or days.

Banks and third-party services can use a banking API to offer Personal Finance Management, which collects financial data from different places — bank accounts, insurance policies, investment accounts, stock brokers etc. — to give users a big picture of their budget and offer better deals on the market. Using information and features available through an API or screen scraping, third parties can develop new payment methods, offer special credit cards or currency exchange services.

Whatever the purpose of the data acquired from banks would be, open access to client information stored in banking systems will drive competition and innovation in the financial market. Banks and third parties will receive trusted, verified information, while customers will get better deals and experiences when applying for a new bank account, loan or credit card, or will be authenticated and verified in a much simpler and faster way. Everyone will benefit from releasing the data stored in banks.