Open Banking - The Fintech Revolution Poised To Transform Financial Services
Open Banking has the potential to transform banking as we know it, accelerating innovation and empowering consumers.
Imagine getting easy access to all your financial transactions in one place, irrespective of the banks or wallet services you’ve used. What’s more; imagine getting sound financial advice for how you can improve your tax savings or how you can finally buy that dream car – again, all in one place! Sounds futuristic, right? Wrong! It’s already happening. Pandemic or not, the world is changing at a faster pace than anyone of us can imagine, especially the financial world.
Say hello to Open Banking or API Banking as us industry insiders like to call it (to sound fancy, yes, but also so that we don’t miss the plot). Basically, open banking is the system of allowing access and control of consumer banking and financial accounts through third-party applications. To make it simpler, it opens up a plethora of avenues to democratize banking and put the freedom of choice in the hands of the customer.
For example, suppose you have a savings account with Bank A, have applied for a car loan from an NBFC B, and use two credit cards – C and D. Open banking gives you streamlined access to all these financial services through a single interface. Moreover, you get notified of other services that might interest you, such as a wallet service offering better shopping deals or a mutual fund scheme giving you higher returns. In a nutshell, you get all of banking as a service (BaaS), wherein you pick and choose the services that interest you, on the go.
Re-Energizing the Banking System
Although a relatively new term, open banking is not completely unfamiliar in the financial sector. The open banking system was conceptualized in the year 2016 due to the need for a common banking platform for customers. Moreover, it has been a norm for older, established banks to not have to compete hard for customers, while smaller banks find it difficult to access customers and grow. This often means that customers aren’t given enough choice or control over choosing a banking option.
“Pandemic or not, the world is changing at a faster pace than anyone of us can imagine, especially the financial world”
Open Banking aims to re-energize the banking system while providing a common platform for established and newer banks. The Application Programming Interface or API is a software that allows conversation between two applications of different platforms, which is exactly what is needed to unite the banking system. Open banking API offers access to cross-platform transaction data that helps end-users to compare accounts and access new products. It is a way for two systems to talk to each other through a set of rules and protocols that govern communication. Basically, banks will share their application programming interfaces (APIs), containing consumer data, with authorized third-party vendors who can then peruse this data to innovate newer and more relevant solutions. All of this, with prior consent and authorization from the customer whose data is being shared.
This has a three-pronged benefit – firstly, this allows for banks to monetize their consumer data; secondly, the third-party vendor is equipped with a better framework to innovate on; and thirdly, the consumers can enjoy a much better banking experience, thanks to the next-gen services that they can access.
Initial Step - The Benefit of the Cloud
Though open banking and cloud technology aren’t similar, they are very closely entwined. Banks will need to adopt strategic cloud solutions in order to move to open banking so as to offer safe, quick and bespoke banking services to the consumers.
The open banking system is heavily dependent on processing large volumes of data in real-time and, therefore, moving to the cloud is the smartest way of maintaining elasticity in services while also having the freedom to grow at scale. The cloud empowers a bank to capture an unprecedented volume of customer data, analyse it, and deliver bespoke services where they are wanted. Moreover, cloud technology combines the highest standards of data security available. Plus, along with boosting processing efficiency, moving to the cloud helps insulate the bank from technology change and the need to schedule upgrades.
Revolutionizing Financial Services
Open banking gives the leisure of choice to consumers who can opt for financial services specially tailored for them. You can move, manage and take better control of your money. It shows how much you are spending and on what type of services, allowing you to take informed financial decisions. Plus, your data is encrypted end-to-end and most of these apps or platforms are regulated by a government body.
From an industry perspective, open banking is expected to not just usher but accelerate innovation in the financial services sector by making it more competitive. Moreover, open banking gives access to consumer transaction history, allowing businesses to tailor better and more relevant solutions, while also making accounting easier and speeding up the process of service delivery.
With Banking as a Service (BaaS), not only would consumers discover brand new ways of transaction but businesses would also benefit from a plethora of profitable avenues.