Is OpenBanking and PSD2 replacing the SWIFT-network on the long run?

by Dr. Olaf Klein

Openbanking (and PSD2 as the European regulation for it) are actual drivers to a change of our understanding of connecting the banks, persons and corporates with each other. Previously, an individual just could connect to the bank with the web-interface or app, or if you are lucky, you can steer your bank directly via SWIFT (based on the offer of your bank).

Openbanking starts some years ago with defining APIs for some core banking systems to offer various consumers ways to interact with them. Consumers could be portals, fintechs or other providers. These APIs were partly based on industry standards. 

PSD2 is now the regulating framework to base these APIs on some sort of more precise legal frame, but it left the industry alone in designing their collaborative standards. But at least some players started already to fill this gap. One of them is The Berlin Group. 

Funny wise, these groups can base their work on the already existing ISO20022 or the other standards still used in the interbank area. 

Comparison of SWIFT-approach and PSD2-Definition

So, the main difference is, that SWIFT offers as a value add is the central authentication and storage of messages and a hardware-secured network (off course, also running the SIBOS and maintaining the underlying ISO-standards for the messaging).

SWIFT-heritage

SWIFT is a typical child of the understanding of IT in the early 70ies. Based on the fact, that there must be an easy way to go from a telex-based infrastructure to message interchange, SWIFT built up a human readable message standard (I normally say, the disdainful charm of the curly brackets), a central network with some sort of short-term storage and maintained a community, mainly via SIBOS. 

With ISO 20022 this human-readable standard was somehow adapted to web-technologies, but the old format still survived. Current plans foresee to change the curly brackets into the XML-representation in the early 2020ies. Let us see. 

When I asked Lazaros Campos in 2012, when SWIFT will shut down the network, because nowadays everything goes via internet-connections, he resisted to understand this question, but now with the drivers to go into a peer-2-peer connection based on authenticated connections with standardized APIs this thought becomes real. 

PSD2-Opportunities

Directly steering your bank-accounts via standardized ways (and forget all the batch-processing).

Use third party tools with your bank’s information and not just the offers (like personal finance managers) of the individual bank.

Kicking off some sort of a world-wide demand to open up banks for steering your money. 

Conclusion

So, there might be a chance, that PSD2/Openbanking opens up our understanding of banking and somehow remove SWIFT as the traditional gatekeeper for doing transactional business with your bank.

Happy to discuss my thoughts.