Open banking safari

Since the launch of the EU Commission’s Second Payment Services Directive (PSD2) in 2018, the adoption and implementation of open banking has been fraught with unexpected challenges and technical hurdles.

As the Engineering Manager responsible for connecting European banks with Klarna Kosma’s open banking API, my role involves overseeing a team of crack engineers and banking veterans who ensure a seamless experience for our banking partners and end-users. As a result, I’ve enjoyed a front-row seat during this critical era of change for the finance sector.

Much like the dry savanna plains or cold arctic tundra, the world of open banking is a demanding and uncharted environment that requires bravery, ambition, and preparedness to explore its potential.

So, join me as I tell the story of my “open banking safari” and take you on a journey to explain how Kosma is leading the charge to improve PSD2 coverage and connectivity across Europe — and the world.

One of the biggest challenges with building PSD2 connections alongside banking partners is striking a balance between geographical reach and quality of service.

As with any innovation, open banking deployment involves a trade-off between quality and quantity. While many providers saw the EU’s mandate to adopt PSD2 as a box that needed ticking, Kosma was focused on working with a range of stakeholders to ensure the legislation was adopted in the best possible way.

Instead of creating sub-par APIs that would lead to bugs and errors down the road, we have taken a proactive approach that involves communicating with the regulators, supporting the banks, and listening to end-users to deploy long-term solutions that has cemented Kosma’s position as an open banking pioneer.

Our coverage philosophy is all about striking a healthy balance between breadth and depth to ensure we can offer PSD2 connectivity to Europe’s largest banking ecosystem, without compromising on the quality and scalability of our solutions in each locality. While many payment providers claim“coverage” in a growing number of regions, Klarna guarantees a usable and accessible service by establishing reliable connections with at least 90% of banks in a given country. Additionally, we have managed to cover more than 99% of the banks in 10 core countries.

The cornerstone of successful PSD2 deployment is improving the synergy between open banking providers and banks to support two-way connectivity.

While the EU Commission’s initial mandate required all European banks to adopt PSD2 connectivity by September 2019, unstable systems and reliability issues forced the EU to loosen the reins and provide breathing space for stakeholders to refine their approach.

Open banking connectivity is a far greater challenge than simply developing an API and expecting a bank to integrate it into their existing systems. API development is a two-way street that requires open banking providers to work directly with banking partners to ensure a smooth and error-free transition.

Crucially, the collaboration between technical partners and banks is a continuing and iterative process that requires constant maintenance. As banks evolve, legislation changes, and the wider economic landscape moves with the times, Klarna is committed to working with its partners to adjust to their specific needs.

Possibly the biggest challenge for PSD2 deployment is bridging the gap between test environments and real-life scenarios. While almost all open banking providers use sandboxing to simulate APIs in a safe and risk-free environment, building realistic simulations that can anticipate on-the-ground issues is an incredibly complex (and often overlooked) task.

There are 3 key disconnects between sandboxing and running APIs in production:

1. Sandboxing typically uses static information, yet the real world involves highly dynamic data.

2. The real-world is subject to thousands of interconnected variables that are impossible to account for in an isolated sandbox.

3. Simulated environments can’t anticipate uncontrollable or unpredictable events.

Bridging the gap between PSD2 API sandboxes and Account Servicing Payment Service Provider (ASPSP) production APIs is a critical success factor when establishing connections with new banking partners. Moving from a sandbox API to a production API presents a whole new set of challenges and unexpected complexities that require live data sets from real customer accounts to ensure a smooth transition. 

Critically, the challenges of implementation vary in different localities and between banking partners. The secret to successful expansion involves tuning into these nuances and tailoring your approach to provide bespoke solutions.

PSD2 connectivity is not a ‘one size fits all’ exercise.

For me, the most important success factor behind Kosma’s expanding open banking coverage boils down to our human-oriented culture. We care about people, and we’re genuinely interested in building meaningful relationships with our partners.

My open banking safari has taken me across the globe and sparked lasting friendships with hundreds of banking partners. Striking a balance between breadth of coverage and depth of service hinges on a providers’ ability to interact with partners on a human level and understand what support they require.

While it’s all too easy for individual stakeholders (such as regulators, providers, or banks) to play the blame game and deflect responsibility onto others, Kosma’s philosophy involves tackling challenging situations head-on and taking a proactive approach to help all parties move in the right direction.

Practically speaking, we have a number of region-specific teams with the sole mission to build and maintain strong bank connections. Each team focuses on delivering localized solutions and forming meaningful relationships with partners to ensure Kosma’s open banking expansion is supported by robust and reliable APIs. Since the start of our open banking journey, these teams have exchanged over 17,000 emails with banks, processed more than 2,500 pages of feedback to regulators, and executed over 1200 ABC tests to optimize the flow between Kosma’s API connection and the banks’ existing APIs.

Continual communication, refinement and iteration are crucial to address location-specific challenges and move closer towards a fully optimized open banking solution.

Teamwork is the ultimate driver behind Kosma’s growing dominance in the European open banking space. The combined efforts and insights from our team of world-class engineers, innovative minds, and pioneering partners are shaping the future of finance.

My open banking safari has been a challenging yet highly-rewarding adventure that shows no sign of slowing down.

Since starting our open banking journey, Kosma has successfully established coverage in 27 countries.