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QA Paradigms in Open Banking

Open Banking started as a regulation in the British banking circles, and now countries around the world are racing to adopt it. Australia is making its first move towards Open Banking later this year in July. The European Union is adopting PSD2 on lines of Open Banking. Countries implementing Open Banking are being watched intensely by those planning  to adopt these standards like Israel, Canada, Hong Kong, Japan and Singapore. Everyone is waiting to see the outcome of Open Banking imperatives. What is Open banking? Why should the IT world take notice? And what would be the implications of Open Banking in the Software Testing world? I am going to take a stab at these in the next few paragraphs.

To start with, Open Banking is a directive by UK's Competition and Markets Authority which mandates that all banks should expose their customers' data via open APIs to third party providers like competitor banks and FinTechs, with the express consent of the customer. What started as a regulation, Open Banking now broadly refers to the splitting of banking services and enabling customer's data access to partners outside the incumbent banking system with express consent. Open banking has created avenues for Fintechs and challenger banks to use technology which can leverage Customer data to help secure loans, provide a level playing field to pick and choose, help with payments, etc. Open banking has truly enabled FinTech firms to compete with large banks by helping them design more customer friendly products and also has provided much needed competition between banks to provide more value to the customer. Until recently if another bank/FinTech wanted access to the financial data of a customer, either the customer would have to fill in the data fields manually or the bank/FinTech would obtain the customer's login credentials and scrape the incumbent bank's page to get the required data. This is not a best practice with in terms of cyber security and a rather crude way to garner data. Now, Open banking has made it very convenient for customers to expose their data via open APIs. Additionally, it has empowered customers to switch banks easily. And further constructed a level playing field where FinTech firms can leverage data and technology to come up with creative solutions against the larger banks. Overall, Open Banking has increased competition and innovation while adding value to the end customer.

European Union implemented its own Open Banking regulation known as PSD2 which is an abbreviation for Second Payment Services Directive. PSD2 is a regulatory directive by the European Banking Association (EBA) applicable to European Union markets. PSD2 requires banks to grant customers the right to choose their payment partners PSD2 had been conceived with the intent of making payments easier in terms of innovation and use. There were few salient differences between Open Banking regulations of UK and PSD2 but in November 2017, Competition and Markets Authority mandated that Open Banking should be compliant with all PSD2 directives.  Open Banking will now cover all payment products like Credit Cards, Debit Cards, e-Wallets, etc. which are part of PSD2. Both PSD2 and Open Banking regulations have evolved to complement each other by increasing the scope of financial products under Open banking.

Payments will also get simplified via Open Banking. For example, currently on an ecommerce site, a typical payment goes via various intermediaries like the merchant, Payment Gateway, card associations like Visa or MasterCard, issuing bank and acquiring bank. But, with Open Banking, the online retailers can directly conduct payment transactions with your bank without any intermediaries. And again this benefits the end customer as the surcharges demanded by these intermediaries is eliminated.

Which brings us to the ultimate question of this blog, how will Open Banking affect IT industry especially Software Testing? Interoperability through common standards as one of the keystone objectives of Open Banking.  To achieve this, banks will have to build open APIs which comply with regulatory standards, security protocols, safe data transfer, compliance with all the directives, etc. Open banking creates a plethora of opportunities in regulatory testing, penetration testing and security testing to make sure all the security protocols are in place and thwart cyber criminals, performance testing when many customers try to access or transfer data at the same time, API testing, Accessibility testing, consent testing, Strong Customer Authentication testing.

Open Banking has the potential to grow into a niche QA area where domain experts with testing skills would work on ensuring the APIs and platforms are performing optimally. Experts in QA who are well versed with Open Banking landscape will be very much in demand and since all financial institutions operating in Europe and UK must conform to Open Banking standards, all of them will require support in this area. There are 9000+ financial institutions in Europe and all of them will have to comply with Open Banking/PSD2 which translates to immense QA opportunities.

This write up serves as a generic introduction to Open Banking and opportunities in store. My next post of Open Banking will look at more granular details of how Open Banking will affect QA in various industries like Retail!

Reference:
https://bankingthefuture.com/a-primer-on-open-banking/
https://www.openbanking.org.uk/wp-content/uploads/What-Is-Open-Banking-Guide.pdf
 https://www.paymentscardsandmobile.com/psd2-explained-payment-services-directive-created/
https://www.starlingbank.com/blog/explaining-psd2-without-tlas-tough/

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