Open Banking – The Novel Mainstay of Digital Banking

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Ecommerce is a part of our daily lives. Whether buying groceries with one click on Amazon or calling a taxi using a mobile app called Ola or Uber, individuals across the globe are progressively dependent on the convenience of online services. Thus, in the banking sector, innovative services based on open data are growing at a rapid pace too.

We can say, it’s a rebellion. Tech and regulations together are revealing the banking value chain. Thus, a bank’s performance now will outline its future—to either win or lose.

In the past few years, the banking sector has evolved at a rapid pace as non-conventional participants such as neo-banks and fintechs are joining the global industry. It’s a call to action, “open banking is here.” Open banking is one of the disruptions that will modify banking forever. In today’s competitive world, banks are taking a closer look at digital banking to enhance their performance.

Is open banking the basis of a new digital banking backbone?

Open banking is a safe way to give suppliers access to your financial data. It is establishing a statistics architecture, where a group of organizations can share the information via Application Programming Interfaces(APIs). These APIs are used by banking and financial companies to exchange data between them, thus helping to serve consumers better. Open banking allows banks to offer customized financial services to their consumers, majorly payment solutions.

The revolution is both developing the industry toward platform-based, hyper-relevant distribution, and offering banks a precious opportunity to develop their networks and extend reach. In short, we can say open banking is more about sharing financial data by electronic means, securely, and only under circumstances when consumers agree. Therefore, when you share data voluntarily owing to legal reasons, you become a part of the open banking community.

Gear up for a world of websites and apps, where one can select modern economic services and products from providers policed by the Financial Conduct Authority (FCA) and European equivalents.

  1. Thanks to open banking, it shows a clear view of your finances in one place and helps you to find the best services, deals, and products that suit you.
  2. Easy, direct, and quick payments from your bank or building society.
  3. It works with both mobile and online banking.

Across the globe, the industries are starting to identify that open banking is altering the financial landscape in several ways, primarily by enhancing overall consumer engagement, helping financial firms to advance service offerings, and improve revenue from new channels. For instance, several financial services are embracing open banking initiatives; this includes Visa, PayPal, and Wells Fargo.

As per PwC data, about 64% of individuals and about 71% of small and medium-sized enterprises (SMEs) are expected to adopt open banking by 2022.

This shows that people around the world are adopting digital technology in the financial sector. Open banking plays an important role in the rise of the digital economy as it makes payment easier and more transparent.

Banks are transforming to become fully digital. For instance, external partners like non-traditional financial service providers, Fintechs, and other technology-driven industries are supporting banks to take steps toward the digital world.

Financial institutions must accept digitization to stay ahead of time. For instance, more than 10,000 financial institutions in the US are expected to examine open banking standards and application programming interfaces (API) that enable third parties’ effective access to financial information. Thus, open banking offers a better opportunity for financial institutions to overhaul core services and deliver meaningful solutions to consumers.

Most customers pursue payment ecosystems and manage their financial lives using third-party applications such as Apple Pay. This silent digital transformation has driven the limits of current bank/consumer relations, and it will always lead to a broad reimagining of the nature of these relationships in the future.

Further, to roll out the finest model for open banking, money lenders need to:

  • Recognize security.
  • Understand the API value.
  • Classify new partners.

Open banking is trending, and it just might be the best optimum route to digitization.

All about API

API enables an open exchange of data, thus giving banks and other tools and services a chance to talk to one another. APIs present financial institutions with an opportunity to expand business at a rapid rate by sharing services with third-party providers. Therefore, APIs have risen as the essential enabler supporting a new era of banking.

Open APIs for business growth

Constructing an API strategy will boost innovation, offer a faster and better integration process, help financial institutions create novel products, and offer consumers richer experience. Nowadays, community financial institutions concentrate on cutting edge technology to expand their business. Open banking is no different. Open data sharing will allow customers to access their banking data to make better decisions regarding their savings, transactional behavior, and investments.

APIs move businesses from multi-channel/single consumer communications (company, app, and web-based) to multi-experience ecosystems (third-party online portals, internet of things (IoT), and virtual reality). It also ensures organizations meet performance, security, and authority access control strategies, protecting consumer information.

The bank-fintech partnership is rapidly developing as an important component of helping small business loans as large money lenders struggle to manage a rise in volume in paycheck protection program loan applications.

The open banking concept and the new EU directive PSD2 is revolutionary and customer centric. PSD2 empowers bank users, both customers and companies, to use third-party suppliers to handle their savings based on the information made accessible by their banks.

Open banking and B2B

Business-to-business (B2B) payments process is often difficult via payment processors’ systems, which may not be consistent with the receiving bank. APIs play an important role in easing the process by allowing consumers to fully assimilate with bank practices and be prepared to manage payments at any time.

Gareth Gaston, Executive Vice President and Head of Digital Platforms at the U.S. Bank, said, “Open banking integrates solutions into a seamless experience for business-to-business clients, and they can then use however many providers or solutions they would like rather than necessarily being married to one.”

For instance, Infosys will support technology assimilation of Biz2Credit’s Biz2X solution, a SaaS platform created to empower investors to customize and digitize their small business lending offerings. It’s a relationship that not only highlights opportunities in bank-fintech collaboration but the significance of technology and data integration, which ensures that those relationships function appropriately.

Therefore, as Bill Gates says, “Banking is necessary. Banks are not.”

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