German Parliament building

Open Banking Gains Major Momentum in Germany

From Laggards to Leaders in Open Finance Innovation

What is Open Banking? Open Banking is a system in which banks leverage application programming interfaces (APIs) to share financial data with third-party providers (TPP). It is rightly recognized as the future of finance, enabling incumbent banks to compete with FinTech upstarts and bringing account holders more customized, convenient and transparent services.

Yet developments have unfolded unevenly throughout the world, even in regions like Europe with close regulatory and cultural ties. Banks in the UK and Scandinavia were early movers in Open Banking compared to many of their continental counterparts. Now, institutions in the DACH region are catching up. Germany, in particular, is taking an important role in the Open Banking space and has made signification progress in the last six months.

In this post, we’ll review the latest developments — and unpack the most promising Open Banking opportunities in Germany.

The Evolution of Open Banking in Germany

Open Banking in Germany has largely been driven by the revised Payment Services Directive (PSD2), as it has in the rest of Europe. But the road to financial innovation wasn’t always smooth.

In 2019, nearly 30% of German bank executives held negative views of Open Banking — almost twice as much as the European average of 15% — and only 25% thought the movement presented significant business opportunities. Perhaps unsurprisingly, 46% thought institutions that implemented PSD2’s minimum requirements would lose to more innovative competitors.

Meanwhile, as recently as late 2020, reports suggested that many German APIs were plagued by technical errors and time-outs.

This pessimism is starting to shift. While London remains a key financial hub, Brexit prompted many banks to move offices to the EU — and Frankfurt is closing the gap when it comes to digital skills, innovation and infrastructure.

Deutsche Bank’s Deeptasree Mitra, meanwhile, spoke openly about moving beyond the PSD2 framework to embed financial services into the product flows and customer journeys of banks and non-banks alike.

Others have pointed out that Germany created the predecessor to what’s known today as Open Banking with the 1998 Home Banking Computer Interface (HBCI), an open standard for online banking. In 2005, open payments pioneer SOFORT followed — one of the first services that allowed customers to initiate payments directly from their bank accounts.

And according to a recent McKinsey white paper, two-thirds of German banking executives now believe that radical changes are required in the industry. Specifically, Open Banking and PSD2 regulations apply to many of the accounts that German banks offer, including:

  • Girokonto — otherwise known as personal or checking account
  • Tagesgeldkonto — instant access savings account
  • Sparkonto — limited access savings account

Opportunities Ahead to Build Trust and Deliver Value

The rapid fall of cash usage during the pandemic has only strengthened Open Banking’s value proposition. According to Mastercard, 65% of Germans substantially increased their use of digital payments in 2020, and 35% indicated that they would continue to do so in the future. Though most Germans still have concerns when it comes to sharing data with non-banks, institutions that can demonstrate the value proposition of doing so — and establish trust through secure, transparent data transfers — will find opportunities in a society that is digitally engaged and comfortable with online shopping.

Indeed, German banks are now poised to deliver value that extends far beyond their core services of holding and loaning money. Open Banking infrastructure enables banks to facilitate customers’ relationships with multiple products and institutions — and put themselves at the heart of people’s financial lives.

Read all about the global and regional opportunities and challenges of Open Banking in our digital hub.

Vaclav Maska is the HID Global Sales Lead for DACH and CEE in the IAM Consumer Authentication area. Vaclav is a multifaceted professional with extensive experience in driving business growth and continuity. He has extensive experience with financial institutions, advising on integration of SaaS technology to secure customer identity and ensure data protection based on local regulations.