We’ve come a long way from relying on banking institutions for everything, to having access to our banking details at our fingertips. With the fast-growing dependency on digital banking, Open Banking and API are now being looked at, as a move that will spearhead innovation in the world of FinTech. Pre-pandemic FinExtra conducted a research with 774 banks worldwide, which concluded that 86% of banks are exploring API and Open Banking facilities for their institution in the coming twelve months. Despite the worries and risk of data sharing, open banking is being looked at because of its capabilities of changing the global landscape of banking and finance.
To break it down simply, open banking is the practice of banks sharing consumer data and records in a safe and consensual manner with third party vendors and businesses via API. This move helps banks to turn their competitors in the world of FinTech into their partners as they are now providing them with an opportunity to collaborate for the better of consumers.
The doors that Open Banking will open up:
- Improved consumer interaction and relationships: Open Banking will allow banks to offer more than just their banking facilities digitally, the API allows for third party financial companies to create apps that will help understand and manage banking services better. Customers will shift focus from banks to networks, reducing their dependency on the institution for everything. It will help in real-time banking services making it possible to have access to banking services 24/7 and streamline the interaction across banks. Open Banking will enable customers to take control of their spending and facilitate services to help improve their saving and spending by predicting their patterns and finding personalised solutions for them.
- Driving Banking Innovation: Open Banking will allow banks to interact with third-party partners who can develop applications and help in scaling banking models with the support of external technology. For example, partnering with a third party application can help banks in providing additional services such as processing loan documents based on loan agreements, allowing them to directly maximise the plans and rates they offer. The transparency of having a customer's personal finances and records saves the hassle of the 2-7 day timeframe that it takes for banking approval whereas, the access to the financial records allows for selecting the best plan for a customer. Making the process instantaneous and more flexible.
- Standardising banking globally: With API and Open Banking, the tedious task of opening a new bank account will become much more simplified, allowing for inter-banking activities to occur more freely. Changing your account will become easier, aside from this third party API will make managing wealth across your bank accounts simpler.
- Integrating microservices: Customers and businesses both will be able to operate more freely in an open banking environment, the use of API to integrate the different microservices/financial apps that are out there will help in saving time and bringing all data together in one place. This means businesses and customers can freely rely on multiple apps of their choice without having to deal with the manual back and forth between them.
- Easing verification and authorisation of transactions: One of the most persistent and annoying issues that banks face are phone calls by customers that don’t recognize their transactions. You may buy something impulsively in a shop and make a transaction via your card. Two months later you might not recognise this transaction in your statement as the name reflecting in the statement might differ from the name of the shop. Banks receive tons of such calls, wasting their time, money and effort in resolving these issues. Open Banking will provide them with access to connect these transactions to their geo-locations and hence the name of the vendor, this simplifies the process. Customers can through an app verify and trace their transactions in a more hassle-free manner.
- Converting data into insights and actions: Banks have had customer data since ages however they’ve always struggled to navigate through it properly. FinTech apps can help provide banks with the extra arm of support in understanding their data, segregating it into demographic, geographic and personality checkboxes creating portfolios of spending patterns and understanding individualistic financial patterns to provide insights to banks that they can use to action their services better. Enabling for more specialised focus/approach to their services.
A closing note on Open Banking and API
Open Banking and API are going to be the driving factors leading to innovation in the world of FinTech the years to come. Its benefits will be consumed by individuals, third-party vendors, banks and basically everyone in the world. It will change the banking game entirely with streamlining lending and loans, increasing competition between banks by adding pressure from smaller banks, providing numerous third-party apps that will enhance banking services and a consumers understanding of finance, enable banks to scale more freely and function in real-time, reduce the liability on physical institutions, provide ease of automating and integrating microservices and simplify the process of uploading and processing financial records to list a few of the many promises that Open Banking has to offer.
Open Banking is a gateway to endless opportunities, step into the future of FinTech with Quickwork and create a journey that paves your way to the future.