Open banking is a revolutionary change that is redefining the financial services spaces in UK and Europe, in which a financial provider’s data is freely shared with third-party companies. For example, a European bank has to share its customer’s data with the customer-approved third-party apps in real time and in a secure manner.
In Europe, this trend is being driven in large part by the Berlin Group, through which 10 countries have been working on payments interoperability standards since 2004. Another open banking catalyst is the Payment Services Directive (PSD2), an EU mandate that requires banks to share customer transaction data with third-party licensed entities. In both cases, the basic concept requires open sharing through use of application programming interfaces (APIs).
Open banking has the potential to shift the power from big banks to new-age players and, ultimately, to consumers. It encourages competition and creates new opportunities for innovative players to emerge.
Open banking creates immense benefits and opportunities, with a number of benefits for users:
Complete Control Of Owned Data: Privacy and control are important to today’s consumer, and open banking provides customers with total control over their data. Consumers can decide who can access their data and the types of data that can be shared. Granting or stopping access is as simple as a toggle button.
Better Financial Products: While banks traditionally have had access to data, they’ve had little incentive for innovation. The rise of the fintech movement has created better opportunities. Open banking boosts new use cases and gives data to new fintech startups, while the customer benefits from better products. A good example is Flux, which provides banking apps with automatic digital receipts that can be leveraged to create unique offers and enhance loyalty.
Personalized Customer Experience: Open banking also enables the creation of digital offerings and gives customers a better overall financial product with an experience that is far more personalized and relevant to the customer. A good example is ING Bank’s Yolt, which provides a refreshing approach to managing money, including a single view of money and rich insights.
Better Financial Management: Data-driven recommendations help customers manage their finances better and make better financial decisions. For instance, new apps can analyze credit card spends and suggest better credit card products suited to the user’s needs. Data analysis helps users identify the best shopping deals, Forex rates and savings interest rates. For instance, Chip leverages AI and automation to analyze a user’s personal data to help save money for different life goals.
Reduction of costs: Open banking also enables the disintermediation of unnecessary players. For instance, retailers can directly deal interact with a user’s bank account to get paid, bypassing intermediaries like Visa, PayPal and Master Card. By reducing transaction charges, the overall cost of service goes down, as well.
Security & Fraud Prevention: Open banking also allows the sharing of data in a secure and encrypted manner. Technically, the information is provided via token to the third-party requester, meaning the third party does not sort any information. Additionally, only registered entities can access the data, and they have to provide regular reporting and adhere to compliance rules, reducing the possibility for fraud.
In addition to providing better options for end users, open banking benefits the financial services industry, as well. Open banking creates new use cases and products to connect with millennials, while also creating new service lines and opportunities to cross-sell and up-sell. Open banking also gives financial services providers new business models, as well as the ability to redefine offerings and connect with the banking customers. For instance, Yapily provides an API to connect to 250+ million bank accounts in Europe, providing access to information in an easy and secure fashion.
Companies hoping to leverage open banking should focus on:
- Developing a clear vision for business strategy
- Identifying use cases that are validated and backed by research
- Creating a robust, scalable and modular technology architecture
- Adhering to the highest security and privacy standards
- Focusing on a human-centric design
- Performing strong testing of functional, non-functional, integration, sandbox and API automation
- Utilizing a data analytics platform to monetize the customer journey
The outlook for open banking is positive, and the direction is clear, setting the stage for significant uptake in 2020. Are you ready? Contact us today to talk to us by submitting the form below.
