open banking

According to experts at the fifth edition of Bulgaria’s Digi Pay Summit in Sofia, Open Banking is not a concept that is generally understood yet, and it desperately needs to be if it is to develop further.

According to Merdihan Ismailov, GM of Digital Services at licensed payment institution IRIS Solutions, the current landscape of Open Banking is such that banks in general are ‘opening’ up to it. 

“They are now seeing the tech not only as an alternative, but as a much needed addition to their service portfolio,” Ismailov said. “Open Banking isn’t just a payment method. The main goal is to give customers unobstructed access to their bank account data.”

Another remark added by Ismailov was that the European Commission is also beginning to consult with third party providers (TPPs) such as IRIS Solutions about changes that aim to achieve the same customer journey across all digital channels. 

He cited Bulgaria as the most relevant example where embedded onboarding, which allows for clients to be onboarded directly by a TPP, has recently taken off in terms of use cases. 

Phillip Mutafis, Investor at payments gateway Paysera Bulgaria, raised a counter argument in which he claimed that because Open Banking is a relatively new concept, adoption rates cannot move forward unless educating customers about it is made a priority.

“Open banking is in stagnation. It’s because outside of this hall, under one percent of the population knows what it is,” Mutafis said. 

“It is evident that a sturdy ground layer is being built, but so far it’s been unclear if we’re going to step on it. There are amazing things deriving from open banking but the world is full of good services that are not being used.”

Mutafis then went on to explain that the effectiveness of open banking has not been developed fully, and that this will lead to less usage if not fixed.

“The user base needs to first learn what open banking is. It’s not only an alternative to card payments. The service really works, but not always. This leads to irregular usage. That’s why there needs to be a coordinated approach to push the effectiveness to between 99 and 100 percent.”

Although retaining a critical tone, Mutafis did not move on without also acknowledging the benefits that the service can bring, listing lower costs than card payments and being easily integratable as some of them. 

The panel was also attended by representatives of banks in Bulgaria. Kamen Kirilov, Head of SME Support at DSK Bank, shared that he does not think that bringing its effectiveness to 99% will necessarily lead to the ultimate goal of popularising the service. 

Instead, for Kirilov achieving this is mostly dependent on a strong infrastructure, which DSK is already working on with TPPs.

“The application of this infrastructure is really important. Tech companies also play a big part in it, as they find new services to offer, validating customer demand and thus driving adoption of the new tech.”

As someone from the fintech industry that Kirilov tried to imply should be working overtime, Ismailov immediately fired back by saying that in order to reach a meaningful adoption of open banking in Bulgaria, banks first need to create API access to the services they offer. 

“Embedded finance is the current buzzword. Open banking is the first step towards that, as you can build a lot of services on top. The region is still in its infancy, however.

“In the UK, I can give permission to a TPP to reach out to my bank and request all of my data. In Greece, Romania and Bulgaria, only two banks currently have a KYC interface process. This is a lost opportunity, as it is one of the ways to monetise open banking.”

Towards the end of the discussion, the panellists were asked what is the future for Open Banking. 

Each one took an individual approach based on their experience, with some talking about the EU as a whole while others focused on Bulgaria. 

Merdihan Ismailov described what he’s seen so far from participating in different work groups with the European Commission (EC). 

“There are talks about a PSD2 upgrade. What I can say is that there is a focus on alleviating the work of TPPs and adopting a customer-friendly approach. By the end of this year EC has to come out with a decision on the new directive. 

“Open finance will not be like PSD3 but a separate act of the Commission. A start will be given to initiatives related to financial education.”

Phillip Mutafis then noted that the predominant cash usage will disrupt the adequate penetration of Open Banking in Bulgaria.

“Loyalty, accounting, and all sorts of Open Banking services are valid as much as transactions are being made digitally. In Bulgaria, cash is still king. It is in the centre of the grey economy and corruption. 

“While cash transactions preside, data about them is scarce, meaning that open banking will not move much forward.”

Elmaz Ismail, Head of Payments at TBI Bank Bulgaria, supported Mutafis by saying: “Definitely things can be hidden through cash payments. But I think that in order for their influence to diminish in favour of digitalisation depends on how informed clients are, just as we talked about financial inclusion at one point in the past. 

“The faster way of analysing a customer is through their payment history, which can happen if it leaves a digital trail behind. This will lead to a quicker and easier service.”