Where Open Banking Meets the Decentralized Web (Web 3.0)

As most in the industry know, Open Banking is a global banking movement that arises either from an imposed regulatory framework or from a market-led attempt to push the boundaries of innovation. The practice enables customers to share their financial data with third-party fintech providers through Application Programming Interfaces (APIs). FinTechs can then use such data to build innovative applications and services to improve the financial lives of consumers.

Now, for example in the United Kingdom alone, over 2.5 million citizens and businesses have access to a wide variety of FinTech applications that help them take control of their financial lives, such as:

• Account aggregation services that offer a holistic view of a customer’s finances
• Personal finance management apps that explain where an account’s money is going
• Savings apps that round up purchases to the nearest cent and save the difference in a dedicated digital wallet

Open Banking may still be in its infancy, but we can find use cases in all areas, from banking to lending and even insurance. However, this global data-sharing movement has so far excluded certain industries and developers.

Not all FinTech innovators are on the traditional Web 2.0. There’s an entire ecosystem of developers building decentralized services on Web 3.0 that don’t have access to traditional financial data to build their apps.

The Decentralized Web (Web 3.0) is the next generation of internet applications and services enabled by blockchain technologies. Blockchains are networks of decentralised nodes that validate transactions that are cryptographically signed by the participating actors, thus reducing the reliance on a single centralized source of truth. This sets the foundation for smart contracts with self-executing parameters that have no need for third parties.

However, blockchain faces a major barrier to adoption known as the API connectivity problem: a constraint that prevents the blockchain ecosystem from directly accessing “off-chain” data, including Open Banking and Open Finance data. This causes friction between Web 3.0 and applications on Web 2.0 that has for long created a misguided narrative that blockchain financial services are bound to replace many banking based products.

Fortunately, this connectivity issue has been addressed by the API3 Foundation. API3 provides decentrally governed and quantifiably secure data feeds, originating from first-party oracles that are operated by some of the world’s premier API providers.

By using API3’s oracle middleware, OBP will enable blockchain developers to call over 400 of its banking APIs, thus providing the blockchain ecosystem with the tools to create crypto-banking solutions, while banks will be able to provide data feeds directly to blockchain networks.

For the first time, financial institutions will be able to stream data to the Web 3.0 community without any third-party intermediaries. This is a significant step towards achieving the API connectivity solution at scale.

As previously mentioned, off-chain APIs is where Open Banking data is held. Therefore, this partnership makes a once locked and siloed treasure-trove of data and tools available to the Web 3.0 community.

This breakthrough will help push blockchain-based financial products into mainstream consumer use and will be at the heart of the future of financial services.

To make this a reality and gain regulatory adoption in public markets, we will invite financial institutions and regulators to an Early Working Group. It is essential to include stakeholders and regulatory authorities early on in such significant undertakings.

Further, OBP will be inviting regulators and industry leaders to participate as mentors and judges in Blockchain Banking tech-sprints to help shape the infrastructure of blockchain-based financial services so they can exist as a core component of the global financial system.

Each blockchain banking tech-sprint will address various challenges using Web 3.0 technologies and Open Banking tools. The blockchain and open banking developer communities will be able to merge and explore proof points to rapidly prototype blockchain-banking solutions. This will create the foundation for regulators to dive deeper into blockchain applications, and for banks to develop open banking-Web 3.0 access frameworks.

In short, these Blockchain-Banking tech-sprints will serve as a hub for prototyping crypto-banking solutions that, with institutional approval, could then be taken to market and allow banks to become ecosystem leaders of the Decentralised Web.

Challenges for the Tech Sprints will be announced before the start of each event, but some of the exciting topics we aim to explore are:

• Sending stable coins via the SEPA network
• Securities settlement in the blockchain for investment banks
• Regulatory transactional blockchain account information and payment initiation
• DeFi-as-a-Service for better yield products in digital banking accounts

In the long-term, these initiatives will also serve as a framework for financial regulators to explore and create new standards when merging with the Blockchain space.

With cryptocurrencies rampantly increasing in value as they become embedded in the global financial system, it’s inevitable to see more governmental and institutional involvement. Until now, there has been a lack of infrastructure for regulators and banks to test the proper framework for a harmonious blockchain-banking-based financial services industry.

Thanks to this partnership, the sector is ripe for standardisation and ready to be incorporated into mainstream consumer financial technologies, which will be powered by both financial institutions and the Web 3.0.