Open Banking- Enabling Innovation in Banking

Several recent reports by Deloitte state that the dynamics of Financial Banking are changing at a super-fast speed. The emergence of newer business models and the digital ecosystems created by companies like Google, Apple, Facebook and Amazon (GAFA) along with new-age FinTech’s, are transforming the customer behavior and experience. In this kind of a scenario, one concept that is gaining ground, helping achieve more convenient and customized customer experience, and is unalterable in the future is Open Banking. (Deloitte, 2019)

Not sure what Open Banking is? Open Banking- also known as “Open Bank Data” is a collaborative digital banking model where banking data and financial information is shared with a user, safely and electronically, that too under conditions that the customers agree to. Application Programming Interfaces (APIs) help third parties to access financial information provided by Banks and financial institutions, facilitating the smooth development of new applications and services which will deliver high-level capabilities to the marketplace. (Nelito, 2019)

The Safest Way to Share Financial Information?

It is one of the safest ways to share financial information with other financial institutions and paves the way for organizations and users to build customized, tailor-made products and services for their end customers. This greatly enables a customer in discovering new ways to expand his money.

Open Banking APIs uplift innovation and collaboration, with all the extended banking ecosystems trying to improve the customer’s lifestyle with much more than financial services, by offering a more personalized experience. The customer’s permission is a crucial part of the strategy, open banking tries to provide a higher level of worth to the customer which motivates them to allow data sharing.

The institutions that understand and make full use of the innovative potential of open banking improve their previous customer relationships and come up with clear-cut winners. The first-mover banks and credit unions can also become the top leaders by providing customers the choice and control of their own data, at a time of increasingly personalized financial services.

Open Banking isn’t just a beneficial situation for banks, regulators and financial start-ups but it is beneficial for consumers as well. If we look at it practically, the potential benefits of open-banking are too many with enhanced customer experience, increased revenue streams, and a sustainable service model for the deprived markets. (Money Saving Expert, 2019)

A Few Examples of How Open Banking Is Boosting Innovation in The Banking Industry

• Open Banking APIs are extremely beneficial in case you want to switch over from using one bank’s checking account service to another. It can also recognize the topmost financial products and services for consumers, like a new savings account which would earn a much higher rate of interest or a divergent credit card with a lower rate of interest, by only looking at the customer’s transaction data.
• When it comes to lenders, the use of networked accounts helps them get a clearer picture of a customer’s financial status and risk level to regulate the loan terms. At the same time, customers can check their own finances before taking on debt.
• An open-banking app for homebuyers could automatically calculate what the customers are capable of affording based on the information in their accounts.
• There’s good news for visually impaired customers as well. Apps with voice commands can help visually impaired customers understand their finances in a much better way.
• Open Banking helps small-size businesses save a lot of time with online accounting. It can also support fraud detection by keeping a tab on the customer accounts in a proper way and recognize the potential security issues.
• Open Banking APIs provide applications direct access to the similar portions of data required for analysis without disclosing any sensitive customer information.

The Advantages of Open Banking

• Open APIs will help app developers to introduce more helpful tools for taking care of the customer’s expenditure.
• With access to immediate information, lenders will be able to simplify and smoothen lending, hence making it a super-fast process.
• Business loans turn problem-free with lenders being able to extract all the data that they require from a customer’s bank, credit card issuer, and accounting system.
• The integrated systems can now automatically update all transactions hence making it cheaper for consumers and businesses.
• Banks and third-party apps can assist in overcoming fraud and waste by scanning through the transactions.
• Innovative start-ups with bright ideas will bring in all kinds of original and intelligent services by introducing newer and better ways of functioning in the marketplace. (Nelito, 2019)

Thinking about the issue of privacy and third-parties, banks, and APIs use sturdy security measures to safeguard confidential information. Open Banking requires consumers to approve the procedure of when and how financial institutions can share their data with specific parties. In any case, a major botheration remains that authorized sharing can also put a customer’s private information into the wrong hands.

Lastly, while Open Banking promises to benefit end-users and also bring about newer innovations and new competition between banks and non-banks, it is also expected to usher in a totally new financial services ecosystem, in which a bank’s responsibilities will change dynamically for the better.