Talking about financial services without mentioning open banking is becoming increasingly difficult. What is it, how does it change the industry and what can it do for you? Let’s find out.
What is open banking?
Open banking emerged as a response to the growing need to make access to financial services more accessible and wider. Also known as “open bank data”, it gives open access to financial data generated by banks and other financial institutions to third-party service providers such as fintechs or online financial services, using APIs (application programming interfaces). Thanks to this, customers can freely make use of innovative financial services, usually via apps.
Traditionally, customers’ financial data could only be controlled and used by traditional financial institutions – usually banks where customers had their accounts. Thanks to open banking, it is enough to grant your bank consent to allow it to share your data with other providers, simplifying the way financial services work and making them much more user-friendly.
A recent Open Banking Impact Report states that as a result of using these services (including real-time transactions, cloud accountancy, and greater accessibility to their accounts), 77% of respondents have more immediate and accurate insights into their financial position at any given time, which hugely influences the way they feel about their money and helps them using their funds in a more informed way.
How did open banking change the world of finance?
Since its beginnings, it kept revolutionizing financial services by driving innovation to the whole industry. Thanks to the convenient access to financial data, open banking facilitates the following aspects, all through apps and online platforms:
- it grants convenient ways of viewing customers’ accounts and money,
- it allows for easy ways of doing transactions,
- it facilitates finding the right services for the customers,
- it makes it possible to use different kinds of payments,
- it allows one to find profitable loan terms and makes applying for loans much easier and paper-free,
- it grants seamless currency exchanges.
It may seem that, although a great alternative to traditional banking, is still far from ordinary people. The reality is completely different: a survey conducted by Mastercard revealed that more people are using open banking than they realize. It looks like only about half of users know about it, but about two-thirds are actually using it to pay bills or deal with everyday financial issues.
The impact on large and small institutions
Open banking democratizes the world of financial services and makes it more attractive to smaller players, allowing them to be more competitive and get more clients. Newly established businesses are now free to enter the market and give their clients services that some time ago were accessible only through large institutions.
Another benefit of using this solutions for both large and small companies is cutting costs by adopting new technology. What’s more, it allows businesses to improve their customer service and form long-term relations with clients by giving them innovative financial products.
The future of open banking
Although open banking is linked to some risks, mainly those related to the safety of data, it is still considered an inevitable future for all financial services, allowing customers to have more control and be more flexible when it comes to their money. Only by embracing it will companies be able to grow and attract new customers. The time to start using open banking to your advantage has clearly come.