What is Open Banking? Open Banking is a practice that allows sharing of customer’s financial accounts safely via electronic medium. The data is taken from banks and financial institutions via the Application Programming Interface. Let us analyze it with the help of an example.
Assume you have only two friends with whom you share your thoughts, experiences, and issues. They assist you in resolving your problems with their experiences. Now, if you have a network of close friends, do you think sharing issues with them and getting their experiences can give you a broader perspective?
Need for Open Banking
Open Banking lets you rely on networks to assist you with your finances. The third party share your financial details with many platforms and financial institutions and manages your money better than centralized banks. In addition, it makes the customers more empowered with data sharing and awareness of their financial position through innovative solutions.
Earlier, traditional banks were the sole owners of customer data and had limited in-house growth options. Today, with the help of Open APIs (Application Programming Interfaces), about 80% of institutions have embraced partnerships with Fin techs to garner better earnings and ensure transparency of the channel delivering superior customer experiences.
As mentioned above, Open Banking enables APIs to get the work done. APIs apps or programs are mediums for two or more applications to interact. They are first agreed upon by the government, regulators, and then banks. Banks then build and implement them via developers. Businesses and markets can now access them and showcase their innovative products and services to the customer base. APIs give direct access to your account balance, transactions, investment options, etc.
The apps used earlier required you to sign in to your bank accounts with the bank username and password, which posed significant risks to your financial privacy. But with APIs, you do not need to give bank-enabled account details and yet be open to new markets for better services.
Benefits of Open Banking
- It helps lenders to analyze the customer’s financial position and risk levels for good lending terms.
- It makes account holders aware of their financial standing and investments and opens many options to enable growth.
- Customers can get a calculative analysis of their finances to understand if they can take on debts.
- APIs identify the best financial products like the higher interest-earning options and lower interest payment options.
- Voice commands supported by API can assist visually impaired customers in mapping their finances to relevant sources.
- Open Banking acts as a bridge between customers and companies to ensure proper monitoring and fraud detection.
- It makes small businesses aware of online accounting methods and applications.
- Helps banks to strengthen customer relationships and retention by improved finance management techniques.
In short, Open Banking resorts to serving customers the best options, increases interoperability, earns profitability and efficiency.
Risks Associated with Open Banking
With the modern implications of networking over several platforms, more significant risks are sure to follow.
- The customers will have to rely on third-party providers who have no track record of maintaining privacy. In addition, the data sharing among companies and other open institutions can create a new fear of misuse.
- Cybercriminals may devise new methods to hack your accounts.
- If assessed, attackers can learn about your schedules, financial status, behavioral patterns, etc., and may replicate help features.
- Even with multiple financial service providers, there might come the point of saturation when banks have to introduce innovative solutions to compete better.
Examples and Use Cases
Some of the providers who have implemented Open Banking strategies in the US are:
It is still at an early stage of development in the US but with the progress in technology. The country is sure to witness the evolution of financial management, customer satisfaction, and overall growth.
Use Cases/ Implementation Techniques
We will look into some of the banking concepts and analyze the importance of Open Banking strategies.
Individuals create many accounts for several purposes like a savings account, home loan account, study loan account, etc. APIs built on those bank accounts can keep track of the funds and, with the owner’s permission, can enable the growth of the funds by channeling it to relevant sources.
Open Banking can help banks devise AI-enabled apps that can make your banking experience digital and interactive. How would you feel if you could do everything you do in a bank via your tablet?
Companies will build open APIs to scan digital cheques via an app and process them virtually. Thus, it makes the tedious work of cheque transfer convenient and paperless.
Get your Personal Financial Advisor via an app. Talk to the bot about the possibilities of your investments, get suggestions, and many more. Who knew you could manage finances this easily?
You can access cash without having to bring your debit/credit card. Instead, use the app directly for any payments, give a pin, and lo! You buy what you like.
The Future is not Far
We have already seen the implementation of APIs in some form or the other. The Future of Open Banking looks bright, and consumers have already begun getting used to the Digital space. Open Banking is committed to change the economic landscape for the best. With a check on the misuse of the strategies and enabling reliability and trust of customers, banks can redefine the digital evolution in a more elaborated manner with financial inclusion.
We at OpenGrowth, are committed to keeping you updated with the best content on the latest trendy topics from any major field. Also, both your feedback and suggestions are valuable to us. So, do share them in the comment section below.