The banking and finance sectors have been set abuzz with the introduction of a new concept: open banking. This practice is seen as a major source of innovation that many believe will reshape the banking industry. As of late, open banking has also hit the radar of the gambling industry. Let’s take a look at what this concept entails and what it means for the gambling sector. What is Open Banking? Open Banking, also known as open bank data, is a practice that gives third-party financial service providers open and secure access to a consumer’s banking and transactional data from banks and non-banking financial institutions. The sharing of financial data with third-party providers is facilitated through application programming interfaces or APIs. The consumer needs to authorise their bank to provide third-party access, so they remain in control of who receives their financial and transactional information. The Open Banking concept is being hailed as revolutionary by many of the banking sector’s top guns. Devin Kohli, co-head of Emerging Companies at Investec in the UK, has hailed the practice as “a seismic shift for banking”. A Brief History Lesson Back in 2007, during a brutal economic crisis, it was widely acknowledged that the banking and financial sector needed urgent reform. That same year the European Union adopted a proposal known as the Payment Services Directive (PSD or PSD1). The goal of this directive was to try and increase choice and competition for consumers within the financial services arena. Among other things, the directive also introduced a new category of payment service providers other than banks. In 2015, the European Union adopted a new Payment Services Directive or PSD2. This directive was seen as an update, improving on existing rules and creating safer and more innovative payment services. PSD2 officially took effect in January 2018. Many countries around the globe have now adopted the Open Banking practice in various forms. What started with the EU’s PSD2 has now spread like wildfire to nations outside Europe as well. The most notable of these has been the UK. Open Banking became the first enactment in terms of PSD2, after the UK’s Competition and Markets Authority ruled that more competition, transparency, and innovation was needed in the financial and banking sectors. Other countries such as Singapore, Australia, the USA and Japan, have also passed legislation enabling Open Banking practices. An Open-Ended List of Benefits Open Banking provides a myriad of benefits for the bank, the third-party service provider and, ultimately, the consumer. Let’s take a look at some of these positives: Through Open Banking, consumers now have a better picture of their financial state. Banks hold comprehensive records of every aspect of a consumer’s finances – how they spend, what they spend the money on, how they lend, how they borrow, how they invest, etc. Open Banking allows individuals to see all their transactional data in one place. With all of this information at their disposal, consumers can take better control of their finances. Open Banking also streamlines the lending process. Gone are the days when consumers need to run around and collect all sorts of information before applying to a potential lender. Consumers are now able to grant permission to their bank to share their financial data with a prospective lender for them to make an informed decision. Not only does Open Banking streamline lending, but it can also smoothly facilitate payments. With regulated third party providers now able to initiate payments on behalf of the customer (provided permission is granted, of course), it will become much easier for additional service providers to facilitate payments. This in turn may lead to lower payment processing costs and reduced waiting periods. The sharing of transactional information and data will allow smaller banks and non-bank financial institutions to compete on a more level playing field. This increased competition will ideally lead to lower costs, more innovation and higher customer service levels. As third party providers introduce better processes and technologies to consumers, established banks will be forced to re-evaluate their current offering, or risk being left behind. What Are the Concerns? Implementing a new idea always brings with it a certain level of trepidation. Open Banking is no different. As banks, third-party service providers, and consumers come to grips with this concept, there are a few concerns that will need to be addressed along the way. Security – The most obvious issue at this stage relates to security. There are concerns among consumers that their personal and financial information may be exposed to greater security threats as their banks grant access to third-party providers.Considering the many high profile data breaches over the past few years, this concern is certainly valid. That being said, many advocates of Open Banking have indicated that the system is very secure. This is because the Open Banking system does not require individuals to share their banking login details with any third-party provider.Also, there can be no connection between an individual’s bank and a third-party service provider unless the individual explicitly authorises such a connection. This consent can be revoked at any point. Use of information – Another concern at this stage revolves around the using of information by third-party service providers. Consumers will now have to contend not only with how banks use their information, but also any provider that they authorise. In order to allay these fears, third-party providers will need to be transparent about how they intend to use client information. A Boon For Online Gambling Open Banking has not gone unnoticed in the gambling world. Casino operators and other gambling organisations are waking up to the enormous benefits that this can bring to the industry as a whole. As a third-party payment service, casino operators will have access to consumer data stored by banks, provided that the individual has authorised such access. Once permission is granted, banks will integrate directly with the casino operator via an API, allowing them to initiate payment services on behalf of the individual. This will result in a smoother payment process, reduced operational and banking costs and even instantaneous and simplified withdrawal of winnings. Responsible Gambling with Open Banking Open Banking makes even more sense when viewed through the lens of responsible gambling. With real-time transactional data now at their disposal, casino operators will more accurately be able to assess a player’s level of affordability, monitor a player’s spending behaviour, and step in when gambling problems arise. Through Open Banking, operators can now take more decisive action to assist gamblers who are at risk and prevent small problems from snowballing into large ones. Lastly, Open Banking can assist casino operators in detecting and combating fraud and money laundering. With direct access to a player’s banking data, operators can quickly and efficiently verify players through their ‘know your client’ process. This will enable them to quickly root out potential scam artists and fraudsters. Ultimately, Open Banking will go a long way to improving and streamlining the overall customer experience, while simultaneously increasing protection for players at risk. Open Banking at LeoVegas Casino Several casino operators have already taken steps to implement Open Banking transactions on their platform. LeoVegas recently became the first online gaming operator to offer Open Banking as a transaction method. With 10% of its UK customers already on board, LeoVegas expressed optimism that Open Banking would facilitate faster and more secure payments as well as less reliance on third-party payment providers. Gustaf Hagman, LeoVegas’ group chief executive, recently commented: “Secure, seamless and fast payments are incredibly important, and the fact that we now – through PSD2 – have the opportunity to directly integrate with many European banks, will provide a superior customer experience offered by security and speed. Conducting transactions via open banking is also considerably more cost-effective compared with traditional payment methods.” Credit reporting company, Experian has also made its foray into the world of Open Banking. For more than a year, Experian has made their Open Banking service available to gaming operators to perform affordability checks on players. According to Tom Blacksell, Managing Director of B2B at Experian: “Innovative Open Banking services can help the gaming industry to protect its customers from problem gambling. People who choose to share data can prove they are gambling at a level they can afford, while gaming companies can meet their responsibilities to keep customers safe.” As more casino and gaming operators come to understand the inherent benefits that Open Banking brings to the industry, more organisations will seek to get on board. How Does Open Banking Stack Up Against Crypto? From a hype perspective, Open Banking can be compared to the phenomenon of cryptocurrencies such as Bitcoin and Ethereum. There are other similarities, too – both Open Banking and cryptocurrency aims to create a seamless transaction process and also make payments more secure. However, there are several striking differences between the two. Firstly, Open Banking leverages off existing banking infrastructure, so there is no need to adopt an entirely new system. On the other hand, most cryptocurrencies require parties to subscribe to new technology to transact. Secondly, Open Banking is capable of working across all banks and all major currencies, making payment facilitation far easier and quicker than its crypto counterpart. Thirdly, Open Banking carries far less volatility than any cryptocurrency option. All of these reasons make Open Banking a more viable payment method for almost any transaction. The Tide Is Rising To the average person, Open Banking may not seem like much. But to those in the know, this practice promises to be a game-changer. Customers now have a birds-eye view of their finances, allowing them to make more informed decisions. This will also generate increased competition among banks and non-bank financial institutions, who are now able to make decisions based on the same data. This increased competition inevitably leads to the development of new and creative products, all aiming to win the consumer over with the best deal. Lastly, Open Banking promises to revolutionise the gambling industry as we know it. By giving operators access to players’ transactional data, as well as the ability to initiate payments, the customer value proposition is invariably enhanced. Players will ultimately benefit from the seamless payment facilitation, reduced withdrawal waiting periods and lower transactional costs. Operators can also better follow through on their commitment to responsible gambling practices, by assessing a player’s spending behaviour and acting to protect vulnerable players. Make no mistake, Open Banking is poised to become the industry standard in the gambling sector. Top Open Banking FAQs 1. How does Open Banking work? Open Banking works by requiring banks and other non-bank financial institutions to open up customer transactional data to third party providers, once an individual grants permission. 2. Why is Open Banking good? Open Banking is good because it breaks up the monopolies of financial services and allows more providers (smaller banks, other financial service providers) to enter the sector. This will result in consumers having more choice regarding which financial products they need as well as which products are better tailored to their current requirements. 3. Is Open Banking secure? Open Banking is quite secure. As the owner of the data, you have complete control over who receives it. A regulated third-party provider can only have access to your customer data if you authorise access. You also retain the right to revoke such access at any point. Your bank login details also remain confidential, as you never need to divulge this to any third-party provider. In this way, your bank account remains secure. 4. What are Open Banking APIs? Application Programming Interfaces are what enables banks to share customer data with third-party service providers. APIs also allow third-party service providers to initiate payments on behalf of an individual customer. APIs must be designed and documented by PSD2 and Open Banking regulations. 5. What does Open Banking Allow? Open banking caters for the sharing of accounts and customer data across institutions for use by consumers, financial institutions, and third-party service providers. It also allows for payments to be initiated on behalf of consumers, where this has been authorized. 6. Who benefits from Open Banking? Ultimately, you as the consumer. Through Open Banking, customers now have far more control over how their sensitive information is shared with financial providers. This information can also be used to compare products and services to find the best deals.
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