By lowering the barriers that prevent customers from switching banks, Open Banking hopes to increase competition and innovation in the banking industry. With Open Banking, customers can share their banking information and transactions with approved third-party financial service providers (such as fintech businesses). Account balances, transaction histories, and other information about customers’ banking accounts and services are all included in this data category.
The Foundation of Open Banking
The foundation of Open Banking is the exchange of information, which enables customers to reveal their banking details to vetted outside parties. Application Programming Interfaces (APIs) allow this to happen by defining a standard for how applications may communicate. Through application programming interfaces (APIs), Open Banking facilitates the safe transfer of information between the systems of financial institutions and those of external service providers.
How Open Banking Benefits Consumers
Open Banking’s ability to offer customers more agency over their financial information is a significant perk. Why? Because customers have control over which third-party providers have access to their data and may remove access at any moment. Consumers may now confidently shop for the best rates and offers from service providers, as they have complete access to and control over their personal financial information.
Open Banking has several advantages, one of which is that it encourages competition and new ideas in the banking and finance industry. Open Banking promotes entrants into the market by lowering the barrier to switching banks or other financial service providers. Consumers benefit from more competition through cheaper costs, better discounts, and new and exciting goods and services that better meet their needs.
Open Banking may significantly alter the way we handle our money. It encourages competition and innovation in the financial services sector and provides customers more leverage in their quest for the best goods and services. Because of the significance of this change in the banking sector, customers would do well to be aware of it and assume responsibility for their financial information.
Open Banking: A little more detail
Simply put, “open banking” refers to making customer banking information available to other parties subject to government oversight. A bank will need your permission to access your data before giving it out, which might come in the form of checking a box in a pop-up window or reading and responding to an official email. Your approval is required for this to happen.
As soon as they have permission, these regulated service providers will pool all of the necessary information, analyse it, and develop a detailed customer profile.
Let’s look at personal finance as a real-world application of open banking to clarify things. What we call “personal finance” refers to the full range of actions one does over one’s lifetime to save, spend, budget, and invest one’s hard-earned cash.
Personal finance used to include trips to the bank, lengthy conversations with a banker, a calculator at home, copious notes and a futile attempt to manage one’s fortune.
The previous methods no longer suffice now that money is spread among several accounts, loans, interests, standing orders, payments, and continuing expenditures.
Now more than ever, people need to be able to access, manage, and engage with their accounts wherever they are, whenever they want. Open banking helps improve the user experience in this regard.
The ability to check your account balance and make instantaneous transfers are impressive, but they are just the tip of the iceberg.
Third-party service providers can make better recommendations by accessing your account information. For instance, if you’ve set up a savings account labelled “New house” and put away a certain amount every month, the lender will be better able to offer a loan that works with your budget.
You can add the following options:
- Money-Saving Advice
- Features for price comparison alerts and cost savings
- Updated, personalised investing guidance in real time
Since you now have a partner in the background continually analysing data and recommending a better course of action for your financial well-being, banking shifts gears from reactive to proactive with open banking.