The Drawbacks of Using Open Banking APIs in a Mobile App

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Open banking has many benefits. It can be used to reinvent small business banking. One recent study found five million SMBs believe the existing models provide substandard financial service propositions. The innovation foundation Nesta estimates that more than half of these businesses are unhappy with their current banking arrangements. One positive in-market example is Barclays’ Pingit solution. However, many drawbacks must be considered before open banking can be adopted as a viable solution.

The customer experience isn’t great.

The first step in introducing an open banking API to a mobile app is to ensure that consent is required. The OBIE-defined consent process is not intuitive and practical for third parties, users, or banks. Furthermore, the OBIE-designed consent flow limits third parties’ ability to design a customer journey and makes implementation difficult. Regardless of the advantages of an API, customers have mixed feelings about using it, and a negative experience can deter a potential performance.

Open banking API providers have the same end goal, but each provider approaches it differently. Although open banking isn’t yet an international phenomenon, it has grown in popularity in recent years, and more banks are turning to this technology to improve customer experiences. For the customer, the result is a more seamless experience. Open banking APIs can improve the experience for customers by allowing third-party applications to integrate seamlessly with their banking apps.

The reactive phase of open banking usually lasts from zero to twelve months. The cost of an API is the main determining factor in the length of the reactive period. Even though an API is free, it may cost as much as $20,000. And payment service providers are exposing mandatory interfaces to improve the customer experience. Some even plan to monetize the PSD2 data and make it available to third parties. But despite all the benefits, the overall experience is still not great for the customer. You may check out for more information.

Treasurers lack a single source of truth.

The HM Treasury announced in March 2015 that the banking industry would become more competitive, opening up the market to alternative providers of financial services. Open banking standards have allowed third-party service providers to provide financial services to businesses on equal terms. While the revised Payment Services Directive (PSD2) has taken the drawbridge off the banks’ access to customer data, it has also created an environment where Fintech can harness APIs. This means that treasurers could benefit from APIs in the future.

Integrating multiple banking systems, including a single source of truth, is a critical requirement for treasury operations. Treasurers often struggle to access real-time data across multiple accounts. Without a single source of truth, they cannot make informed decisions. Moreover, they must manually connect to a bank’s APIs to complete basic transactions and move cash between businesses.

Despite the many benefits of open banking APIs, the challenge is that the security of such solutions remains a challenge. Existing solutions are based on proxy architecture and cannot correlate reconnaissance activities over time. As a result, bad actors are more adept at exploiting the lack of a single source of truth in banking. In addition to a single source of truth, APIs can also expose sensitive data.

Challenge of building a single API connection.

While APIs are a crucial component of Open Banking, they are not uniform among banks. That can create challenges for innovative players building services on the banking infrastructure. One such challenge is the fact that many banks have complex back offices. To overcome these challenges, banks must build a single banking API connection to share customer data with their partners. Fortunately, API-led connectivity can help solve this problem.

Ideally, all financial services APIs should be the same and compliant. Unfortunately, PSD2 is not yet law in the U.S., but other disruptive technologies’ impact on our financial sector is evident. For example, Mint, Paypal, Venmo, TurboTax, and even PayPal are all examples of disruptive technologies. Banks that choose to play defense against Open Banking will miss revenue opportunities.

As an open banking initiative, banks must ensure that their APIs can support the Open Banking standard. However, building APIs for a broad market can be expensive and time-consuming. Moreover, the market does not listen to government-backed initiatives. In the meantime, many fintech products still don’t conform to the Open Banking standards, making it difficult to convince customers to switch tools. For this reason, banks must embrace an agile approach and allow an MVP culture.


Gunnar Mueller