Open Banking is the Hot Topic! VISA Acquires Coinbase Service Provider for $5.3 Billion

Visa has acquired a fintech company called "Plaid" for $5.3 billion, which provides API services for integrating with mainstream U.S. electronic payment services like Venmo and other banks. Additionally, it provides secure connections to user bank accounts for the largest U.S. cryptocurrency exchanges Coinbase and Gemini.

According to a press release from Visa, one in four people with a U.S. bank account has used Plaid's technology.

The success of Plaid also signifies a new trend in integrating financial technology with traditional banking systems. It can be expected that at this stage, "openness" is more likely to be widely adopted than "decentralized finance."

Open Banking: Sharing User Data

Large banks, with high market share, lack a strong incentive to create new services for customers; at the same time, the lack of data interoperability between banks results in high costs and inconvenience for customers to switch accounts, leading to a low percentage of users transitioning to other financial institutions. This has hindered financial innovation.

As early as 2015, the European Parliament passed the Payment Service Directive (PSD2) to promote innovation in online and mobile payments through "open banking." Since 2018, banks have been required to provide open APIs, authorizing licensed third-party non-bank companies to access customer data, including account information and transaction details.

According to reports, when traditional banks release data and share it with their peers, it benefits lowering the barrier for new entrants to the financial market. Additionally, large banks can acquire new customers and drive innovation by offering new integrated services through third-party providers (e.g., performing operations across multiple bank accounts with a single app, integrating personal information across bank accounts, etc.). Third-party providers (e.g., tech startups) can develop new business models using information from open banking to promote financial innovation.

Plaid CEO: Truly Open APIs Do Not Exist

In 2018, McKinsey interviewed three financial innovation companies, including Plaid CEO Zach Perret. Perret stated that their goal is to "lower the barrier to entry for developers and democratize access to important services." However, democratization does not imply complete openness.

He mentioned that the term "open banking" is not entirely appropriate because there are no truly "open" APIs in financial services. It is crucial to examine developers and their purposes due to security, regulatory, and privacy reasons. Nevertheless, he believes that it is exciting to see large financial institutions beginning to adopt financial technology to provide users with better financial management services.

McKinsey concluded that these financial innovators agree that regulatory structures facilitate data sharing, but prioritizing "convenience" over "control" and "restriction" is essential to ensure that all parties enjoy the full benefits of open banking.

The widespread adoption of open banking may serve as an interface for institutions and the public to accept the concept of decentralization, potentially benefiting decentralized finance based on blockchain as another option.

Further Reading

• Binance Research: DeFi has become one of the most important areas of Ethereum
• The second decade of cryptocurrency? Coinbase CEO: Central bank-supported crypto assets are the most dramatic

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