Sergey Kondratenko: Fintech and open banking – trends and technologies

Open banking, also known as open banking data, is an innovative practice in the banking industry. It allows third-party financial service providers access to consumer banking and transaction data. Fintech expert Sergey Kondratenko notes that this access is provided through application programming interfaces (APIs), which allows various institutions – non-banks and banks – to exchange information.

According to the specialist, open banking provides the opportunity to combine bank accounts and financial data from different institutions. This benefits both consumers and financial institutions. At the same time, the former can manage their finances more conveniently and efficiently, while the latter gain access to a larger volume of data, which allows them to offer highly personalized services.

How did open banking change the concept of fintech, what are its features and how popular is it in international financial systems?

Sergey Kondratenko: statistics and popularity of open banking

Open banking has indeed undergone significant changes and achieved impressive results in the financial industry. Sergey Kondratenko suggests paying attention to several statistical facts and data on its impact.

• Volume of open bank transactions.In 2023, the global volume of open banking transactions reached $57 billion. This figure indicates that open banking is actively used by clients and financial institutions to exchange data and perform financial transactions.
• Increase in the number of API calls.With the growing popularity of open banking, a significant increase in the number of calls to open banking APIs is also expected. The expert estimates that their number could reach 580 billion by 2027. This indicates the importance of technological bridges to ensure secure data exchange within this practice.
• Popularity in Europe.Open banking is particularly popular in Europe, where third-party open banking providers (TPPs) are actively developing their activities. These authorized organizations can provide their services across borders within the European Economic Area (EEA) under a passporting scheme. At the same time, open banking services are becoming more accessible.

Sergey Kondratenko says that open banking is a modern phenomenon that is revolutionizing traditional banking industries and leading them into the future. The number of professionals in this field around the world is projected to grow by 50% on average from 2020 to 2024. If we talk about open banking users, analysts suggest that by next year their number could increase to 132.2 million people.

Such statistics indicate that open banking provides clients and financial institutions with new opportunities and solutions, and brings innovation and change to the financial sector. Open banking is likely to become a key element of the modern financial ecosystem in the near future.

Open banking: modern technologies that are changing the financial world – Sergey Kondratenko

As the expert has already said, open banking is becoming increasingly popular among financial institutions and clients. According to open research data, by the beginning of 2021, up to 87% of countries were already providing some form of open banking. The rapid growth of this phenomenon is largely driven by digital technologies and tools such as application programming interfaces (APIs), cloud computing, artificial intelligence (AI), machine learning (ML), and blockchain. Sergey Kondratenko suggests considering the features of their use in open banking.

API plays a key role in the development of open banking, where financial institutions can interact at the direction of the client using cards.

APIs in banking include protocols that make financial services available to third party providers. As Sergey Kondratenko explains, this provides the ability to securely process transactions in real time. The expert says that to create applications, third-party providers often need access to customers’ personal data. In this case, the API can help by requesting it from external servers. For example, if a third-party provider needs access to a customer’s transaction history, they can send a request to the Banking API. In this case, the necessary information is extracted from the bank’s database and transferred to a third-party supplier. This process is called an API call.

Financial institutions are implementing APIs for different types of clients, platforms and operating systems. In this way, they meet the diverse needs of open banking, which is likely to contribute to its further growth. For example, DBS Corporation, which provides banking and financial services in Singapore and other countries, has released more than 200 APIs through its developer portal. APIs have fueled innovation in payments and lending.

Cloud computing is an important solution for efficient data processing in open banking. Today, open banking is a task for which financial institutions must process huge volumes of information from a variety of sources, also in real time. Sergey Kondratenko knows how to solve this problem – by using cloud computing. They provide a robust and scalable platform to meet the needs of the modern banking ecosystem. According to the specialist, the flexibility and scalability of cloud solutions make it easy to collect, store, analyze and distribute data. Financial institutions can access cloud services as needed and pay only for the resources they use.

Benefits of cloud computing:

1. Reduce costs and expenses for on-premises hardware to process massive amounts of data.
2. Provide the necessary flexibility to manage fluctuations in information volume.
3. Cloud computing can be used to create big data and test environments, allowing developers to innovate securely.
4. Cloud computing provides a secure and reliable environment for sensitive data and helps reduce cybersecurity risks and other threats.

AI (artificial intelligence) and ML (machine learning) in open banking. These are technologies that seek to imitate human intelligence using computers. Sergey Kondratenko notes that ML is a type of AI that allows programs to improve their accuracy in predicting outcomes, even without explicit prior programming.

The expert adds that in the banking sector, AI and ML play an important role in the analysis and processing of huge volumes of data. The European Banking Association identifies three key areas in financial services where these technologies can have a significant impact: processes, products and services, and markets.

Blockchain as protection of identity confidentiality in financial transactions. In the open banking process, financial institutions can ask potential clients if they are willing to give financial service providers access to their data. However, there is a potential problem. It means that if they agree, consumers have to disclose all their financial and personal data. Recent studies have shown that they are reluctant to share their banking data with third parties. This is not surprising, since transactions and personal data are considered particularly sensitive information.

Sergey Kondratenko believes that this problem can be solved by introducing independent identification based on blockchain:

“This approach gives consumers full control over their information and allows them to choose what data they share with third parties and when.” In this case, financial institutions and other participants in transactions gain access to data only with the consent of consumers. This data may only be used for pre-specified purposes.

That is, in blockchain-based systems, access to personal data can only be obtained with the consent of the subject; it cannot be stored by a third party. In addition, identity verification information is stored in an encrypted format, increasing its privacy. In this way, blockchain can provide secure storage and transmission of digitally signed data. It is believed that this is one of the most popular applications of this technology.

So, open banking is becoming a source of continuous innovation that can change the face of the banking industry and stimulate competition in fintech, says Sergey Kondratenko. Open banking motivates financial institutions to improve their products and services to meet the needs of modern customers.