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Why are Innovation Sandboxes Important?

Juned Miah
Lead Software Engineer
April 17, 2023

Why Are Innovation  Sandboxes Important?


Open Banking is evolving into Open Finance, expanding the Financial Services API Economy 

Introduced in the UK in 2018 under PSD2 and the Open Banking directive, Open Banking has continued to gain momentum, with over 2.5  million UK consumers and businesses now using Open Banking and adoption trends continue to accelerate. Open Banking is being used by both consumers and businesses around the world to access their banking data more easily and to better manage their finances in a number of different ways. In this article, we will identify the key risks and opportunities that Open Banking presents for banks, what types of capabilities that banks will need, and the pivotal role that innovation sandboxes can play within this.

What do we mean by Open Banking and Open Finance?

Before delving down into the risks and opportunities,  it’s important to state what we mean by ‘Open  Banking’ and ‘Open Finance’. Broadly speaking,  Open Banking is the global trend towards greater  sharing of data, products, and services across  organisational boundaries, most commonly  using APIs (Application Programming Interfaces).  Open Banking in this article refers to the various  international regulatory directives, as well as the wider global trend towards banks and other financial  services players opening access to account and  transaction data to third-party providers (TPPs).  ‘Open Finance’ is the term used to describe the  extension of Open Banking data-sharing principles  to a broader range of financial sectors. This may  include Investment accounts, Insurance, Pensions  and more, enabling a holistic view of customers  financial lives.

How does this impact the market?

Regulatory requirements: 

Where Open Banking is mandated by regulation, banks have to comply with a strict set of requirements  which vary dependant on the market. In Europe under PSD2, banks are mandated to open their APIs to  TPPs to enable them to access account information and initiate payments on behalf of a user. Similar  directives are being enforced across a variety of other geographies: 

Canada continues to make steady efforts towards  adopting a workable Open Banking framework,  whilst the US has opted for a market- led approach. 

Australia has taken significant steps towards Open  Banking, overseen by the Australian Competition  and Consumer Commission (ACCC), has taken  significant steps towards open banking. Consumer  data relating to credit and debit cards, deposit  accounts and transaction accounts are now available  to be shared, as well as home and personal loans. 

Hong Kong & Singapore monetary authorities  have launched playbooks and frameworks designed  to support data exchange and communication  between banks and FinTechs. 

The Central Bank of Brazil is moving forward with  its own open banking regime, with implementation  commencing in November 2020, aiming to be fully  operational by October 2021. 

Banks in the Middle East and the UAE are  exploring Open Banking and data sharing initiatives,  driven by a consumer landscape that has some of  the highest mobile penetration rates in the world. 

India is widely regarded as optimally positioned for  Open Banking with a National ID scheme, instant  payments infrastructure, P2P payment schemes  & policy frameworks on account aggregation, P2P  lending and blockchain. 

Data access is empowering new entrants into financial services

Open Banking has led to significant changes in the  complexion and competitiveness of the banking  sector. Access to consumers’ financial data has  enabled a new wave of FinTechs to successfully  enter the market, providing a range of services to  help consumers and businesses better manage  their finances. These FinTechs often specialise in  niche pockets of financial services, from personal  finance management (PFM) players like Chip and  Plum, to automated accounting services from  current account provider Coconut. 

We’re not just seeing new FinTech upstarts enter  the space, existing Tech and Platform players are  also accelerating their entry into financial services. 

• In August 2019, Apple and Goldman Sachs teamed up to launch the co-branded Apple Card  which aims to deliver greater control, transparency,  and privacy to consumers 

Google launched a major redesign of its Google  Pay app in November 2020 on both Android and  iOS, with a significant focus on helping users better  manage their personal finances 

Amazon is working in partnership with several  banks globally (including ING and Goldman Sachs)  to offer loans to SMEs via their lending platform 

Shopify has launched a variety of financial services  products for small businesses currently utilising their  platform, including Shop Pay and Shopify Balance –  the latter being powered by Stripe’s latest product,  Stripe Treasury 

Covid-19 has accelerated the adoption of Open Banking

The adoption of Open Banking has been accelerated  by the impact of COVID-19. Since the pandemic  first set in, we’ve seen radical changes in consumer  behaviour, with economic activity rapidly shifting  online and customers becoming increasingly likely  to transact through digital channels. The evidence  is clear to see, Banking API provider Truelayer  saw uasge of their Payments API grow by 832%  between March and July 2020 , when many  European countries were in lockdown. This trend  looks set to continue, with consumer confidence in  digital channels and the services available to them  at an all-time high. 

“Banking API  provider Truelayer  saw uasge of their  Payments API grow  by 832% between  March and July  2020”


What does this mean for Banks? 

Open banking regulation

Open Banking regulation has pulled banks  into the API economy, removing one of their  key protective moats that was provided by data  ownership. Banks no longer own the full customer  journey and there are now a multitude of new  emerging players that are looking to disintermediate  the customer relationship and attack profitable parts  of the value chain: 

Open Banking Payments and other rich payments  solutions e.g. real-time payments 

• Targeting historically underserved groups such  as SMEs 

• Expanding capabilities up the value chain and  horizontally e.g. Square expanding from a niche  Point-of-Sale solution into a broad financial  services organisation 

Consumer expectations

At the same time, consumer expectations around  the level and quality of service they receive are also  changing. The customer-centric financial products  being offered by FinTechs and other Platform  players has led to an increase in pressure for banks  to provide new innovative offerings. Consumers are  increasingly demanding: 

• Financial products at the point of formatting need  e.g. buy now pay later financing when shopping  online 

• Seamless digital experiences with minimal  friction e.g. digital onboarding in minutes 

• Access to a broader set of financial products  e.g. digital assets, subscriptions, flexible finance 

Banks run the risk of becoming dumb pipes, providing  customers with accounts that are negatively  unprofitable for the bank due to increasingly high  legacy infrastructure costs with limited revenue  potential. 

Conclusion: Banks need to embrace and build on  Open APIs if they are to thrive in the years ahead,  regulatory compliance is essential but not sufficient  on its own. 


What do Banks need in order to  do this? 

But what do Banks need in order to seize upon the opportunity that Open Banking presents? At Oolys, we believe there are 5 key capabilities that banks need to acquire: 

  1. A regulatory compliant testing capability
  2. To attract and engage leading third parties 
  3. To quickly onboard these third parties in a  production-like environment 
  4. To enable third parties to test against data  and services safely and securely 
  5. To rapidly validate commercial opportunities  at scale 


What can banks do? 

One approach to counter the risk that Open  Banking poses, banks can partner with FinTechs  and other TPPs to launch valuable new propositions  and services that are relevant to their customers.  Leading incumbent banks are already working to re 

structure their business models to drive innovation  and seize upon the revenue opportunities that Open  Banking presents. Exposing APIs out to the third party developer community will be key to driving  innovation and unlocking tangible value. 

Drive innovation: Expose APIs out to the third party developer community 

  • Become part of a connected ecosystem,  collaborating and innovating with TPPs 
  • Leverage the TPP community to co-create new  commercial offerings and deliver additional  revenue streams 
  • Enhance existing TPP developer experience  and testing capabilities in the Bank’s developer/ testing environment 
  • Attract more customers with a wider range of  attractive products and services that meet their  specific needs 
  • Enable customers to access their financial  products at the point of need by embedding  them within other distribution channels 

There are two main ways in which Banks can look  to adapt their business models to incorporate Open  Banking and become API-driven: 

Banking as a platform 

i.e. aggregating traditional propositions with  new and digital services from third parties to  offer innovative services to customers through  the bank’s own channels. Enabling banks  to differentiate themselves from competitors  through novel customer-centric offerings that can  be targeted at specific customer groups. (e.g.  Starling marketplace brings together a variety  of different financial products from third parties  and makes them available to Starling customers.  From mortgage and insurance providers to smart  pension tools) 

Banking as a service

i.e. using APIs to distribute core financial services  products through third parties, increasing the reach  of the bank to new customer groups (e.g. DBS  Bank in South Asia has launched a market-leading  developer portal where they make 200+ APIs  available to third parties to experiment with and  test value against, prior to embedding them within  their own offerings). In addition to the potential for  increased revenues from third parties paying to  use their APIs, banks are also able to use these  distribution channels to grow their customer base  and cross-sell to existing customers. 

How does Oolys help enable this? 

Oolys is a market leading sandbox already  working with Tier 1 organisations around the  globe supporting Open Banking regulatory  compliance and innovation activities. 

Oolys includes in a single solution: 

FAPI Compliant Sandbox 

Built to conform to the latest financial  grade API (FAPI) specifications with a  multi-option security solution. Providing  TPP and internal developers with a flexible and highly secure testing  environment. 

Core Banking Simulator 

Comprehensive core banking simulator  with dynamic test data. Enabling developers to experience end-to-end  customer journeys through a mock  bank that identically replicates a real-life  production experience. 

Automated consent flows 

Programmatic simulation for the approval or refusal of consent on behalf  of a test user via API, providing a way  for TPP developers to fully automate  their testing in the Sandbox. By adopting Oolys, banks have a turnkey  solution that immediately delivers the  dual benefit of regulatory compliance and  innovation via discretionary APIs and a  developer sandbox. 

What can Oolys help institutions achieve?

Open Banking Regulatory compliance: 
  • Outsource regulatory compliance burden:  All mandatory APIs built into the sandbox to the  latest specs 
  • Easily adapt to new regulations and  standards: Oolys is capable of being tailored  to a multitude of different Open Banking  standards and regulations 
API-driven innovation and third-party  engagement: 
  • Embed an unlimited number of discretionary APIs: open up APIs to external  TPPs in order to experiment with and discover  commercial opportunities 
  • Attract leading TPPs with a slick UX  and developer experience coupled with  the power of the bank’s APIs and a data  marketplace: leverage the power of the  TPP community to discover new revenue  opportunities 
  • Accelerate TPP onboarding: Reduce TPP  onboarding time by up to 95%, minimising  friction and lowering ongoing support costs 
  • Accelerate proposition development:  Provide TPPs and internal developers with the  necessary tools to rapidly create new mock  APIs to test and interact with, in a safe and  secure environment 
  • Validate commercial opportunities faster:  Increase speed to market by up to 75%,  leveraging Oolys synthetic dataset generation  and a rich end-to-end test experience that  replicates production scenarios

Want to find out more? 

For more information on how Oolys can accelerate your  Open Banking journey reach out to us at:

Photo Credit: Aron Visuals on Unsplash