March 24, 2018
EU Aims for Open Banking through the Cloud
Cloud computing plays an integral role in the future of fintech. So much so that governments are prioritizing cloud computing in financial institutions. The European Commission, a legislative institution for the EU, proposed a directive in January for encouraging fintech innovation through open banking and cloud computing.
The European Commission aims to create a future open banking system leveraging cloud computing. Under the second Payment Services Directive (PSD2) banks and holding institutions will be required to allow third-party account information service providers to access their client payment account data. This transparency aims to drive more market intelligence enhancing fintech innovation within Europe. A truly open environment creates a level playing field for competition among the best innovators with the same level of access.
Openness through API
One of the solutions to comply with the new directive is to link account holding institutions like banks to third party information providers through API. API is a clearly defined set of communication protocols between software components. It allows for fast transfer of data between systems. APIs are created when companies leave part of their software components open to others. Ever wonder how you can use your Facebook password to create accounts on other apps? It’s through Facebook’s API. The same methodologies will become increasingly leveraged in fintech to streamline data exchange and create openness.
Cloud Adoption and Agility
In addition to API, the European Commission targeted initiatives for the digitization of its financial institutions. This involves removing obstacles through adoption and migration to the cloud. The Commission sets out to create cloud outsourcing and migration guidelines for financial institutions. They also plan to create regulatory codes to facilitate switching between cloud providers.
The EU’s efforts to make cloud computing and digitization law for its financial institutions should signal financial services firms elsewhere to follow suit. Not just for conducting business in the EU, but also to remain relevant and competitive on a global scale.