Open banking is a concept that has been gaining momentum in recent years. It refers to the practice of sharing financial data between banks and third-party providers through open APIs (application programming interfaces). The goal of open banking is to increase competition, innovation, and consumer choice in the financial industry.
FIX (Financial Information Exchange) is a messaging protocol used in the financial industry to communicate between financial institutions. While FIX and open banking are not directly related, there are lessons that FIX can learn from open banking in order to improve its own ecosystem.
In this blog post, we will explore what open banking is and how FIX can learn from it.
What is open banking?
Open banking is a regulatory initiative that aims to increase competition and innovation in the financial industry by allowing consumers to share their financial data with third-party providers. This is achieved through open APIs that allow third-party providers to access consumer financial data with the consumer’s consent.
The benefits of open banking are numerous. For consumers, open banking means more choices, better products, and more competitive pricing. For banks, open banking means increased competition and the opportunity to innovate and create new products and services.
Open banking has been particularly successful in Europe, where the European Union’s Payment Services Directive 2 (PSD2) has mandated the implementation of open banking APIs. In other parts of the world, such as the United States, open banking is still in its early stages.
What can FIX learn from open banking?
One of the key lessons that FIX can learn from open banking is the importance of standardisation. Open banking APIs are built on standard protocols and data formats, which makes it easier for third-party providers to access and use financial data. This standardization has been crucial to the success of open banking, as it has enabled a wide range of providers to build innovative products and services.
In contrast, FIX messages are not standardised in the same way as open banking APIs. While there are standard FIX messages, there are also many proprietary messages that are specific to individual financial institutions. This makes it more difficult for third-party providers to access and use financial data, which can limit innovation and competition in the financial industry.
To address this, FIX can learn from open banking by adopting more standardized protocols and data formats. This could involve creating standard FIX messages that are universally recognized, or adopting other standard messaging protocols, such as REST or JSON.
Another lesson that FIX can learn from open banking is the importance of accessibility. Open banking APIs are designed to be easily accessible to third-party providers, with clear documentation and developer tools that make it easy to use the APIs.
In contrast, FIX APIs can be more difficult to access and use, particularly for developers who are not familiar with the financial industry. This can limit the number of developers who are able to build innovative products and services using FIX data.
To address this, FIX can learn from open banking by improving the accessibility of its APIs. This could involve creating more user-friendly documentation and developer tools, or partnering with third-party providers to create APIs that are specifically designed for non-financial developers.
FIX can also learn from Open Banking by encouraging collaboration between developers, fintechs, banks, and other financial institutions. By providing access to standardized APIs, Open Banking enables these players to develop new financial products and services that integrate with each other more easily, reducing the friction and complexity involved in integrating with multiple systems.
Opening up FIX in a more transparent way would foster innovation and competition, enabling more players to enter the market, and encourage financial institutions to differentiate themselves through innovative products and services.
Although FIX is a long way from being an open, transparent, and standardised protocol, the components that support FIX API connections can be actively improved upon to bring FIX and the world of Open Banking closer together. Centralised, digital API documentation, developer hubs, and developer tools including SDKs, and IDEs, will help move FIX towards a more open, transparent, and community-focused protocol.