The concept of open banking has become one of the most revolutionary innovations within the financial industry in recent years. As the bridge between traditional banks and Fintech, open banking was designed to provide better, more reliable, and modernised services to its consumers. In this blog, we delve into the topic of open banking, whilst also discussing the advantages that it brings to its consumers.
The world of finance has changed drastically. Technology has taken giant strides concerning all types of businesses and markets - communications, entertainment, sports, art and more. These advances haven't pushed the banking system aside, but had pushed them to try and adapt to the new digital era.
These days, operations that have previously required a person to go to the bank have now been replaced by technology and mechanisms that allow transactions to be carried out from anywhere and at any time. But what if there was a possibility to go further? Or if there was a way for all consumers needs to be met through an application?
This is what open banking has enabled, and the adoption of new payments forms was also accelerated by the Covid-19 pandemic, since the world had no choice but to experience and adopt drastic changes in consumer behaviour that we hadn't seen for decades. Meaning that the rise in popularity was fairly sudden, but consumers and businesses weren't put off by it.
What is open banking?
To keep it short, open banking is a practice that allows banks and third-party financial service providers, with the likes of budgeting apps and cash flow management tools for businesses, secure access to your banking and other important financial data. Its benefits aren't just specific to one industry, as they can be helpful for any business that's looking to streamline payment processes.
With this in mind, it's fair to say that there are some circumstances where open banking payments could prove to be extremely helpful. This is particularly true for certain payments where there is a lot of additional information that's required.
Using open banking payments can be extremely beneficial for business, as they can easily send payment links or QR codes to the customer, with all of the necessary information pre-embedded. This not only removes the risk of errors, but it makes it much more efficient, just by simply facilitating linking payments with customers.
Open Banking in the UK.
Previously, traditional financial institutions have been solely responsible for storing and processing data about their consumers financial lives - and for this reason, our understanding of financial information, and what we can do with it, had become limited almost exclusively to the services that were offered by banks.
The movement of open banking established the rules that allowed users to share their own banking information with third parties through Application Programming Interfaces (APIs). This gave people a secure channel to easily share their banking information with other companies, all with their consent. Because of this, these companies can use banking data to build new financial products and services linked to consumers' bank accounts, that are tailored more to their specific financial situations and needs.
The unprecedented circumstances of the global pandemic drove the popularity of open banking up, and there is no longer an option to turn back. Consumers and businesses have had an insight into the future of digital payments and are ready for it to progress further. But how does this benefit the consumer?
The Advantages:
Security & Transparency - While there have been efforts that have helped financial inclusion accelerate around the world, there is still a lot of distrust of online, and general, financial products and services - and the perception of inaccessibility to financial institutions still experience major challenges to consumers.
This is why financial institutions and Fintech companies have to try and find ways to convince their potential customers the benefits of their products and services, which is focusing on security and transparency.
After the implementation of open banking, consumers now have the opportunity to gain full access and control over how their data is used and who can view it. They can also gain the confidence that they're being handled under the best security standards throughout the process.
Faster Access - One of the main benefits is the range of credit services that consumers can apply for. By using open banking, companies that offer loans, can now provide credit offers much faster, which helps consumers get the money they need at the exact moment they require it.
It's not just for traditional credit models, as these models help to promote and create brand new products. An example of this is Klarna, with their BNPL service. This offers consumers the option of buying and later paying in instalments, even if you don't have a credit history or credit card.
Tailored Products - Open banking has the potential to offer tailored and relevant product and service options for consumers, this is down to having more data sources that offer tailored experiences to their needs. By providing access to their financial information, users are now able to have services that match their consumption logic, whilst also having a much simpler and faster experience.
Consumers have the ability to access many different services all from one place, they're able to enjoy the best offers available with more transparency, and have the option to view their current financial situation in one single application, which is just one click away.
Open Banking & FinTech.
Fintech after the global pandemic has significantly changed due to open banking in particular. It encompasses various different techniques in order to increase openness and to also support collaboration in the financial sector. This includes the exchange of real-time data, provides opportunities for other businesses, and even collaborative analytics of the data collected.
The Fintech market is constantly expanding - as a result, there are many services like TrueLayer that offer API platforms for Fintech Developers. There are many companies, including PayPal, that are gradually moving towards an open platform format, giving third-party developers access to payment infrastructure and data through APIs. As an example, Visa launched the Visa Next platform, which brings together payment services for banks and Fintech - this can be used individually or in an integrated manner.
The world of online financial services is being transformed by open banking. Companies are starting to move their businesses to the next level, whilst discovering the endless opportunities that open banking provides. The advantages we discussed previously are just some of the perks that open banking provides for consumers, and these can radically increase depending on the creativity and new services that Financial/Fintech companies are willing to launch.
Open banking has shown to be extremely important, as it serves as a foundation for innovation within the financial services revolution - so it's going to be extremely interesting to see where the development takes us in the next few years.