From PSD2 to PSD3: Europe's last chance to make Open Banking a success?
When the second Payment Services Directive (PSD2) was introduced in 2018, it promised a revolution by promoting greater competition, more innovation, and increased power for consumers.
However, seven years later, we must soberly acknowledge that this revolution never truly happened. Instead, it became a patchwork of technical solutions, regulatory gray areas, and disappointed expectations, with frustrating technical implementation, complex integration, and regulatory ambivalence replacing disruptive innovation.
As the CEO of wealthAPI, a leading provider of financial data aggregation, I have experienced firsthand how wide the gap between regulatory aspirations and operational reality has become. While PSD2 opened a door for Europe, it only opened it partway; with PSD3, we now have the chance to finally push it open completely. Europe is at a turning point, and this is the opportunity to fulfill the promise of Open Banking or to let it fail completely.
PSD2: Good Intentions, Poor Implementation
One cannot accuse PSD2 of being unambitious; the basic idea was sound: customers should be able to grant Third Party Providers (TPPs) access to their account data so they can develop better digital financial products. It was intended to foster competition, enable innovation, and give end-users more control over their financial data. This was meant to create innovation-friendly competition for the benefit of consumers and to modernize the financial sector. On paper, it sounded good.
However, theory and practice diverged. What followed was a regulatory experiment where the market had to bear the risks. The European Banking Authority (EBA) and the relevant national authorities imposed new obligations on banks but did not provide an enforceable framework. The result was a proliferation of APIs, security mechanisms, and interpretations of the regulation.
The Greatest Failures of PSD2
1. Technical chaos instead of standardization
PSD2 mandated that banks provide Application Programming Interfaces (APIs), but the specifics of their implementation remained vague. The Regulatory Technical Standards (RTS) were simply too weak. The result:
- Every bank is developing its own unique technical solution.
- The authentication procedures, data models, formats, and error messages differ fundamentally.
- Some banks don't offer any functional APIs at all or block requests with deliberately restrictive logic.
For a company like wealthAPI, this means we have to develop, integrate, test, and maintain unique interfaces for each bank. This results in an enormous technical and operational overhead, which prevents economies of scale. Integrating a new bank is not a plug-and-play process; it's a project that takes several weeks. This is not what an API economy should look like.
2. A lack of data parity and no real Open Banking
A particularly frustrating point is the lack of data parity. Many banks do not release all the data through their APIs that is available to end consumers in online banking. The data often doesn't match what is shown in online banking. Typical examples include:
- Overdraft facilities are not displayed or are shown incompletely.
- Standing orders are missing from the overview or can only be retrieved in a rudimentary form.
- The names of payment partners' account holders are missing—an essential piece of information for transaction analyses or fraud detection.
What's the point of having access to an account if you only get half the information? Open Banking without complete data is like Google without search results: possible, but useless. This is not only frustrating but also a step backward for the idea of an open financial ecosystem.
3. A user experience disaster caused by over-bureaucratic security
The introduction of Strong Customer Authentication (SCA) was a necessary step for greater security in payment transactions. No one disputes the need for security, but what the PSD2 enabled under the banner of SCA is a prime example of regulation that is far removed from practical application. In its implementation, it has caused serious user experience problems:
- Interruptions between apps, browsers, and SMS tokens.
- Interrupts in authentication processes, especially with mobile applications.
- Incompatibilities with older devices or operating systems.
- A jungle of transaction authentication number (TAN) procedures and inconsistent user guidance.
Even worse, the variety of SCA methods is a technical ordeal for TPPs. We have to implement dozens of variants and constantly update them when something changes. Every authentication becomes a case-by-case review. Users who try to connect accounts via third-party providers often need patience or simply give up in frustration. Innovation needs security, but it also needs usability.
4. Regulation without strength: no sanctions, no improvements
Perhaps the greatest failing of the PSD2 was the inadequate enforcement by national supervisory authorities. There were no real consequences for banks that didn't follow the rules. The supervisory authorities too often looked the other way or gave banks too much time. Banks that violate the regulations or provide poor APIs have faced, and continue to face, very few sanctions.
So, why should banks invest in high-quality APIs if no one is forcing them to? This gap between the rule and reality has massively undermined the goal of PSD2. The market was left behind. Without enforcement, every set of rules remains a paper tiger.
PSD3: The last opportunity to get it right
With the planned PSD3 and the supplementary Financial Data Access Framework (FIDA) Europe now has the opportunity to correct the mistakes of PSD2. We are getting a second chance, but it must be used more decisively. It must finally have the courage to make what was previously only vaguely hinted at legally binding. For this to succeed, cosmetic corrections are not enough; a real system change is needed.
1. Binding standards instead of technical arbitrariness
The PSD3 must no longer contain non-binding wish lists. It must establish uniform, mandatory requirements for all APIs. Clear technical standards that apply throughout Europe are needed, including:
- Uniform data models and data formats
- Defined communication protocols (e.g., REST + OAuth2)
- Verifiable authentication procedures
- Standardized error codes and error messages
- Clear testing and certification procedures
- Interoperable interfaces
Interoperability can no longer be an option; it must become a requirement. Only then can FinTechs scale and banks demonstrate their innovative strength. Only then is Open Banking more than just a technical fig leaf.
2. Full Data Parity Plus Extension
What is visible in online banking must be fully accessible via APIs. Period. No exceptions, no restrictions. And this applies not only to payment accounts but to the entire financial world. In addition, the PSD3 must extend the scope beyond payment accounts to include things like:
- Savings accounts
- Securities accounts
- Loan agreements
- Insurance products
If we are to speak of "Open Finance," we must also mean it. Otherwise, we will remain stuck in a semi-open state. Only then can new, holistic, digital business models emerge, ranging from automated financial advice to dynamic risk management. Open Banking was well-conceived, Open Finance, and Open Wealth are the logical next steps.
3. Rethinking SCA: yes to security, but user-centric.
Security requirements must no longer serve as an excuse for a poor user experience. The PSD3 should not only define security goals but also include user experience guidelines for SCA procedures. It needs to provide banks with clear guardrails on how SCA is to be implemented: securely, yes, but also smoothly, understandably, and flexibly. This includes
- a consistent user experience
- preferred mobile procedures
- fewer interruptions
- flexible, secure options for Third-Party Providers
A binding user experience governance belongs in the regulation. Secure access should not be a hurdle but must be the starting point for digital excellence.
4. Enforcement with strength: rules must be followed.
Without effective sanctions, PSD3 will also fail. Rules are only as strong as their enforcement. The PSD3 needs:
- a European harmonization of supervision
- mandatory sanctions for violations
- clear liability regulations between banks and TPPs
Supervisory authorities, both at the national and EU levels, must be equipped with clear sanction mechanisms. Those who do not follow the rules must face real consequences. Those who block progress must be sanctioned. Those who deliver must be protected. Only in this way can a fair market be created.
PSD3 must not be an evolution; it must be a correction
Europe is under pressure in the digital financial world. The big platform providers from the USA and increasingly from Asia are not sleeping. The USA, the United Kingdom, and Asian markets are developing at a rapid pace. Europe must have the ambition not just to keep up but to lead.
As an API platform for financial data, we experience daily what Open Banking could achieve and where it is failing. We also know that the problems are solvable. What is lacking is not know-how, but rather the political will and regulatory clarity. Open Banking and Open Finance are our chance to build an innovation-friendly, user-centric financial ecosystem that upholds European values such as Data protection, competition, and transparency. PSD3 and FIDA offer a historic opportunity to restart Open Banking.
But for that to happen, the PSD3 must deliver what the PSD2 failed to: clarity, binding rules, and enforcement. If we don't act now, we'll leave the field to other regions. We at wealthAPI are ready to do our part, but the direction must be right.
What Europe started with PSD2 was brave and correct. What it became was half-hearted. The PSD3 is our chance to turn a politically motivated fragment into a truly viable foundation for the digital financial sector, because Open Finance isn't a "nice-to-have." It is the basis for the next chapter in European finance. I am convinced that if we do it right, Open Finance will not just be a buzzword, but an engine of growth for Europe's digital future.
Wealth Management 2025: More Efficient, More Personalized and More Accessible Through Intelligent Technology
Managing assets is becoming increasingly complex. The problem is that traditional wealth management processes are often rigid and lack flexibility. Outdated systems, missing interfaces, and a lack of automation lead to inefficiencies and make it difficult to provide individualized client support. Clients today expect more than just standardized asset management; they desire customized solutions, transparent processes, and quick responses to their needs.
To meet these high expectations, asset managers must fundamentally rethink their processes. For service providers, this primarily means one thing: they need to reduce complexity for their clients. Modern asset management relies on flexible, modular processes that can adapt to the individual needs of clients without overwhelming them. wealthAPI makes it possible to implement this vision and sustainably increase efficiency and customer satisfaction.
The challenges of traditional asset management
While the financial needs of private individuals have fundamentally changed in recent years, some traditional asset managers still rely on manual processes and personal consultations. This may have worked in times when most people conducted their banking and asset management with a single bank. Today, however, it is common for many people to have multiple banking relationships: their assets are spread across a variety of custodians, with several players offering specialized services.
Those who do not keep up with the times and technological progress quickly encounter problems here. Outdated systems, missing interfaces, and manual entries lead to inefficiencies and make individualized customer support difficult. The consequences are high costs, slow processing times, and a limited ability to react to rapidly changing market conditions.
One can imagine traditional asset management as an old house: the rooms are fixed, and every change requires a major renovation. A data-driven and intelligent process landscape with wealthAPI, on the other hand, resembles a modern, smart building that can constantly adapt.
The solution: data-driven and intelligent
A data-driven asset management approach, as enabled by wealthAPI, offers an innovative solution. Through the use of artificial intelligence and machine learning, asset managers can radically transform their processes and offer their clients an entirely new investment experience.
Key characteristics of this new approach are:
- Individual investment strategies: Based on comprehensive customer data, algorithms develop tailor-made investment portfolios that are perfectly aligned with each customer's individual goals and risk tolerance.
- Automation of routine tasks: Processes such as portfolio rebalancing, report generation, or transaction execution are automated. This saves time, reduces errors, and allows advisors to concentrate on value-adding tasks.
- Transparent decision-making: Clients receive insights into their investments at all times and can transparently track the development of their portfolios.
- Scalability: Even with increasing client numbers, high-quality standards can be ensured because many processes are automated.
Data-driven wealth management makes it possible to achieve higher returns by optimizing investment decisions precisely based on individual client profiles and market data. At the same time, risks are minimized as algorithms can identify potential dangers early on and initiate appropriate measures. The transparency of processes and the easy accessibility of information significantly increase client satisfaction. Furthermore, the automation of routine tasks enables a more efficient way of working, thereby reducing costs and increasing productivity.
The Path to a Lean Organization Through AI
The transformation into a lean, efficient organization is more important than ever today. Artificial intelligence plays a key role in this by enabling asset managers to optimize their processes while improving the quality of their services.
Process Optimization Through AI
Modern AI systems can recognize complex patterns in data and gain valuable insights from them. This enables:
- Automated Compliance Checks: AI-powered systems continuously monitor transactions and portfolio compositions for regulatory compliance.
- Intelligent Document Management: AI algorithms can extract and categorize important information from documents, significantly reducing manual effort.
- Predictive Analytics: By analyzing historical data, potential customer churn can be identified early and appropriate countermeasures can be initiated.
Personalization at a New Level
AI also enables an unprecedented depth of personalization:
- Dynamic Risk Profiles: Instead of rigid categories, client profiles are continuously adapted to changing life circumstances and market conditions.
- Tailored Communication: AI-powered systems identify the optimal time and channel for communicating with each individual client.
- Proactive Advice: By analyzing market data and client behavior, relevant investment recommendations can be made at the right time.
Democratization of Wealth Management: Quality Advice for Everyone
Traditional wealth management has long been an exclusive service for high-net-worth individuals. This is fundamentally changing due to digitalization and advanced technologies like wealthAPI. The automation of processes and the scalability of digital solutions now enable asset managers to offer their services to a significantly broader target audience.
This democratization of wealth management is happening on several levels: Firstly, minimum investment amounts are decreasing because automated processes make managing smaller portfolios economically viable. Secondly, complex investment strategies, which were previously reserved for large investors, are becoming accessible to smaller investors through intelligent algorithms. wealthAPI plays a key role in this by providing asset managers with the technological infrastructure to implement this transformation.
The platform makes it possible to automate standardized processes while allowing for individual adjustments. For example, asset managers can offer various service levels: from fully digital solutions for beginners to personalized premium packages for more demanding clients. This flexibility makes high-quality wealth management accessible to a broad segment of the population for the first time, without compromising on quality.
How does that work specifically with wealthAPI?
Platforms play a crucial role in implementing data-driven wealth management. wealthAPI functions as a central platform that connects various systems and data sources, thus enabling a holistic view of the client and their assets.
Through wealthAPI, asset managers can:
- Create Individual Customer Profiles and Tailored Investment Recommendations Based on Collected Data.
- Automate processes and automate routine tasks like acquiring market data or generating reports.
- Minimize risks and identify risks early through real-time data and analyses, then take appropriate action.
- Ensure compliance and adherence to legal regulations through automated checks.
wealthAPI acts as a central data source, consolidating all relevant information. An open interface facilitates integration into existing systems. Asset managers can scale more easily with wealthAPI, as the platform adapts to increasing demands. Additionally, we meet the highest security standards, protecting end-user data.
The Hybrid Advisory Model: The Perfect Balance Between Human and Technology
The future of wealth management lies not in complete automation, but in the intelligent connection of human expertise and technological innovation. This hybrid advisory model combines the efficiency of digital processes with the empathy and strategic thinking of experienced advisors.
wealthAPI helps asset managers optimally implement this hybrid approach. The platform handles time-consuming routine tasks such as portfolio monitoring, reporting, and compliance checks. This frees up advisors to focus on personally assisting their clients. They can invest more time in strategic discussions, analyze complex life situations, and develop tailor-made solutions.
The hybrid model flexibly adapts to individual client preferences. While some clients primarily prefer digital interactions and only desire personal advice for important decisions, others value regular personal contact. wealthAPI enables asset managers to cater to both client groups: the platform provides modern digital tools for self-management, while simultaneously preparing all relevant information clearly for personal consultations.
A particular advantage of the hybrid approach becomes evident in times of crisis: while technology ensures stability and continuous monitoring, advisors can proactively reach out to their clients, alleviate fears, and provide well-founded recommendations. This combination of technological excellence and human empathy builds trust and forms the basis for long-term client relationships.
A Glimpse into the Future
The future of wealth management will be even more shaped by technology, without neglecting the human aspect. Asset managers who invest in modern technologies and lean processes today are laying the groundwork for their future success. wealthAPI provides the necessary technological foundation to successfully shape this transformation.
The combination of data-driven processes, AI-powered automation, and personal advice will become the new standard in wealth management. The focus will increasingly be on individual client support, while intelligent systems ensure efficiency and precision in the background. This allows asset managers to concentrate on their core competencies: strategically advising their clients and developing innovative investment strategies.
More than just banking: How Open Banking and Embedded Finance are transforming our financial lives
The financial sector is undergoing a paradigm shift: away from product-centricity towards customer centricity, from rigid structures to flexible ecosystems. Driven by advancing digitalization and the growing demand for personalized financial solutions, two terms have taken center stage: Open Banking and Embedded Finance. These two concepts have revolutionized the way we think about and use financial services. Open Banking and Embedded Finance enable financial services to be seamlessly integrated into people's daily lives and create entirely new business models. As a leading provider of wealth management interfaces, wealthAPI enables companies to leverage the opportunities of this new era and support their customers in shaping the digital future. How exactly companies can benefit from the potential of Open Banking and Embedded Finance is the subject of this article.
The Basics: Open Banking and Embedded Finance Overview
Open Banking refers to the opening up of bank data to third parties through standardized interfaces (APIs). This enables third-party providers to develop innovative financial services based on customer bank data. Embedded Finance takes this a step further by seamlessly integrating financial services into existing products and services of other industries. For example, online retailers can offer their customers the option to finance a purchase directly through an integrated financing solution.
Driving Forces Behind Open Banking and Embedded Finance
The rapid development of Open Banking and Embedded Finance is the result of a complex interplay of various factors.
Firstly, consumer behavior has fundamentally changed. Customers today expect more than just traditional banking services. They desire personalized, convenient, and seamlessly integrated financial solutions. Additionally, digitalization has significantly increased expectations regarding speed, transparency, and user-friendliness. Open Banking and Embedded Finance make it possible to meet these expectations and open up new customer segments. Companies that fail to meet these expectations risk losing customers to more innovative competitors.
Secondly, regulatory frameworks such as the PSD2 directive, which came into force in January 2018, have paved the way for Open Banking in Europe and thus provided a significant boost to the industry. PSD2 has enabled third-party providers to access end-customer bank data via APIs, thus opening the door for innovative financial services. Fundamentally, the regulator promotes data transparency and competition in the financial market, which in turn accelerates the development of new business models.
Moreover, in June 2023, the draft of the Third Payment Services Directive (PSD3) was published. This is a legislative text that aims to shape the next phase of Open Banking, in particular the exchange of bank data with FinTechs, and to address the shortcomings of PSD2. PSD3 is set to oblige banks to share more information with service providers and to improve the infrastructure for Open Banking in order to remove remaining obstacles. Additionally, the infrastructure for Open Banking needs to be improved to remove remaining obstacles.
Moreover, the pressure to innovate within the financial industry plays a decisive role and is the third key driver. Both established financial institutions and fintech companies are striving to develop new business models to differentiate themselves from the competition. Open Banking and Embedded Finance offer numerous opportunities for this. The increasing digitalization and availability of large amounts of data enable the development of intelligent and data-driven financial solutions.
The Benefits of Open Banking and Embedded Finance for Businesses
Open Banking and Embedded Finance offer businesses a wealth of opportunities to optimize their business models, acquire new customers, and strengthen their competitive position. By opening up bank data and integrating financial services into existing products and services, companies can realize a number of benefits:
A key advantage is that companies can significantly improve their customer experience. By utilizing data, personalized financial products and services can be offered that are tailored exactly to the individual needs of customers. This leads to higher customer satisfaction
and strengthens customer loyalty. In addition, new revenue streams open up for companies. By integrating financial services into existing products and services, additional revenue can be generated How does that work?
For example, the financial blog ftd.de uses our "Wealth Optimizer" to offer its readers a free portfolio check within five minutes. This allows ftd readers to analyze their portfolio based on data and get a clear overview of which asset classes they are invested in and where they may be overweight. They can also compare the performance of their portfolio to indices or investment funds over various time periods. Further benefits of Open Banking and Embedded Finance include:
- Efficiency gains: By automating processes and leveraging APIs, businesses can significantly enhance their efficiency, resulting in cost reductions and the ability to focus on core competencies.
- Innovation: Open Banking and Embedded Finance are driving innovation and enabling the creation of new business models. By collaborating with fintech companies and leveraging new technologies, businesses can continuously enhance their product and service offerings.
- Competitive Advantage: Companies that successfully implement Open Banking and Embedded Finance can differentiate themselves from their competitors. By providing innovative and customer-centric financial solutions, they gain a competitive edge in the market.
- Data-driven decisions: Through data analytics, companies can make more informed decisions, aligning their products and services more closely with customer needs.
From theory to practice: Practical examples of Open Banking and Embedded Finance
The practical applications of Open Banking and Embedded Finance are numerous and varied. Looking beyond the horizon, we can already see applications that have become indispensable in our daily lives. For example, online retailers are already making extensive use of the possibilities of Embedded Finance. You are certainly familiar with this: When you shop online, you are often offered the option to finance the purchase directly through an integrated financing solution. There are also numerous examples in the real estate industry. Comparison platforms, for example, offer their customers financing options directly on the real estate portal. This simplifies the purchasing process and saves time. In the financial industry, the most prominent example is certainly account aggregation. This allows end customers to clearly display all their accounts - regardless of the bank - in a single app. This enables a comprehensive financial overview and facilitates the control of one's own finances. In addition, Open Banking interfaces enable personalized financial advice. Algorithms analyze financial data and provide individual recommendations for investments, insurance, or other financial products. This leads to better decision-making and higher customer satisfaction. If you want to see this in practice, you can check out Rentablo.de.
Challenges in Implementing Open Banking and Embedded Finance
Open Banking and Embedded Finance offer many opportunities but also come with some challenges. One of the biggest challenges is ensuring data security and privacy. Sensitive customer data must be protected from unauthorized access. To gain customer trust, it is essential to adhere to the highest security standards and develop, implement, and regularly review transparent data privacy policies. Another important aspect is standardization and interoperability. For different systems and applications to communicate seamlessly, uniform interfaces and data formats are required. Only then can financial services be flexibly combined and integrated into different systems. Compliance with regulatory requirements also poses challenges for companies. The PSD2 Directive and other regulations specify under which conditions bank data may be disclosed and what security measures must be taken. Companies must ensure that their solutions comply with applicable laws and regulations. wealthAPI is a BaFin-registered account information service. As a service provider for other companies, we are familiar with all aspects of the regulations and support our partners with B2B2C software solutions in the areas of Open Finance, Data Intelligence, KYC, and Portfolio Management. To achieve broad acceptance of Open Banking and Embedded Finance, it is crucial to gain the trust of customers. Transparency and clear communication about the benefits and risks are essential. Companies should therefore actively inform their users about how their data is handled and give them control over their financial data.
The Future of Finance: AI-Powered Innovation
The integration of AI and ML with Open Banking and Embedded Finance is unlocking new possibilities in the financial sector. These technologies enable the creation of highly personalized financial solutions, powered by advanced data analytics. AI algorithms can generate tailored financial plans and investment recommendations, while machine learning can provide accurate forecasts.
For businesses, this means new opportunities to innovate and grow. By leveraging Open Banking and Embedded Finance, companies can create new revenue streams, enhance customer experiences, and gain a competitive edge. wealthAPI is at the forefront of this revolution, providing the tools and expertise to help businesses harness the power of these technologies.
Open Wealth: Unlocking transparent and efficient wealth management.
Open Banking has led to a paradigm shift in the financial sector. Digitalization and the demand for personalized financial solutions have changed our perspective and expectations regarding financial services. But what about the topics of wealth, wealth accumulation, and wealth management? The term "Open Wealth" is not new. But where exactly are we with this? Does Open Wealth have the potential to revolutionize wealth management in the same way that Open Banking has revolutionized everyday finance?
What is Open Wealth?
Open Wealth is like a door, opening up the world of finance to everyone. It's about making financial services and data accessible to all parties, not just large banks. The Open Wealth concept is closely related to Open Banking but has a different focus and objective. Open Banking primarily focuses on payments and account information, giving individuals more control over their financial data. It also allows third-party providers (such as fintechs) to access this data and offer innovative services. Open Wealth, on the other hand, concentrates on wealth management and investment products. The goal is to democratize wealth management and create new, more efficient ways to manage assets. In simple terms: Open Banking opens the door to banking data; Open Wealth opens the door to investments.
The current state of wealth management is characterized by high costs, slow processes, and a lack of transparency
To fully explain the potential of Open Wealth, I need to provide some context. Progress can only be recognized when you know where you stand. Traditional wealth management, often offered by family offices or independent asset managers, has been and continues to be a personal and exclusive service. The relationship between family offices and asset managers and banks has often been close. Asset managers rely on the product offerings of banks to put together individual portfolios for their clients. In addition, the way family offices and the like work is characterized by intensive customer relationships, individual investment strategies, and manual processes. This in turn causes high costs, slow processes, and a lack of transparency.
Digitalization is democratizing wealth management
The digital transformation has revolutionized the wealth management industry, creating numerous opportunities and giving rise to innovative business models. Digital platforms like Trade Republic, Smartbroker+, growney, Scalable Capital, and Whitebox have made investing more accessible and affordable. These platforms automate investment management, providing personalized portfolios tailored to individual risk profiles. By automating tasks like rebalancing, they reduce administrative burden and offer a cost-effective alternative to traditional wealth management, especially for smaller portfolios. Moreover, digital platforms allow investors to monitor their portfolios in real time, access market data, and receive personalized insights. The combination of technology, automation, and personalized services has made wealth management more efficient and accessible to a wider range of investors.
- Increased cost efficiency: Through automation and digitalization, processes can be made more efficient and costs reduced.
- Increased transparency: Clients have a better overview of their investments and can transparently track the performance of their portfolios.
- Increased accessibility: Wealth management services are becoming more affordable for a wider range of clients.
- Data-driven personalization: Through the analysis of big data, we can create investment recommendations tailored to individual needs.
Next Step: Enabling Open Wealth with standardized APIs
As with Open Banking, Open Wealth showcases the power of open interfaces (APIs). These enable banks and (digital) asset managers to connect their systems, allowing for the exchange of data and functionalities across different systems. Think of APIs as bridges between banks, asset managers, and other financial service providers. Or in other words: APIs enable the integration of financial data from various sources, such as bank accounts, portfolios, and market data. This creates a comprehensive overview of a customer's finances. Interfaces enable the automation of many processes: such as the transfer of data, the execution of transactions, or the creation of reports. Furthermore, APIs promote an open financial world where consumers have more control over their data and can compare providers. Sounds good, right? Unfortunately, the current connection between custodian banks and portfolio management systems or external asset managers is often still proprietary. With a one-time data exchange per day (end-of-day) and manual process steps. This leads to a higher error rate and additional costs for maintaining the various interfaces. Standardized interfaces in wealth management are therefore desirable and bring benefits to all parties involved.
The API Custodians: OpenWealth Association
The good news is that such an API for wealth management has already been developed. The driving force behind it is the Swiss OpenWealth Association, a consortium of banks, asset managers, and technology companies. Their goal is to create a business-oriented, widely accepted standard based on known industry standards. This standard aims to promote interoperability between different systems and accelerate the development of innovative financial services. The relevance of the OpenWealth Association's API standard to the upcoming EU Regulation on Access to Financial Data (FiDA) demonstrates how close they are to achieving their goal: Their API is on the verge of becoming an officially recognized FiDA schema. The adoption of the EU FiDA Regulation, proposed by the European Commission in June 2023, is expected by the end of this year or early 2025. However, even after the adoption of FiDA, it will take some time for all market participants to implement the new standard.