Open Finance

& Open Banking

When it comes to the everyday consumer, Open Banking allows them to give consent to regulated third-party providers to securely access their bank transaction history or to make payments. They have control of what transaction information they choose to allow access to and can stop access to your data at any time.

Let’s say, for example, someone chooses a money manager app from a regulated third-party provider which uses Open Banking. The app will ask if it can access its account and transaction data safely and securely with Open Banking.

If consent is granted, and the bank validates the customer’s identity, then the money manager app can now analyse account transaction information to show how much the customer is spending and on what types of things. Which could help manage finances more easily and effectively.

For businesses, this is a great opportunity to offer different and innovative services based on each customers’ personal needs, such as money management- as aforementioned-, price comparison tools, debt and wealth management, real estate and housing, and many others. Or business owners could benefit from this as well, by giving access to their business bank account transactions which could make accounting and managing finances easier, and would speed up the process of applying for a business loan.

Now, what do financial institutions get from this? Before open banking and the rise of FinTech, most financial institutions did not extract any real value from the expensive customer data that they held, however, new FinTech technology players can use these data analytics capabilities in innovative approaches to improve their personalized recommendation engine and customer experience as they access more data about individuals. So, it’s a win-win situation for all the parties involved!

But, this does not mean that Open Banking comes without any risks attached to it. Like how for the customer, access to their banking data, such as transactions and balance, has always been on any hacker’s wish list. No matter how banks strive to secure their systems and APIs, data thieves can always find a weak spot. It means that some customer data will be openly available to other parties. In addition to financial losses, the reputation of banks may also suffer. As a result, it may directly affect the number of customers and partners who are willing to work with this particular bank. And this is not exclusive to banks and its customers, because Open Banking will increase the number of players in the market with similar offers, making it more likely that some fintech companies can experience losses in market share due to more competition.

Having this in mind, there’s still a lot of value that comes with betting on Open Banking. Customers can benefit from more personalized services that are based on the analysis of big data related to their financial habits and behaviour. FinTech companies as well, will be able to create marketplaces for different services, thereby offering customers to either choose only the best or get access to the entire market through one application. And banks will also be able to receive and analyse additional information about the behaviour of their customers and offer them more personalized and relevant services.

So, although there are risks that come with betting on Open Banking, the pros outweigh the cons, making it a very attractive model to be adopted in the financial services market.