As the banking industry continues to innovate and as the lines between fintechs and financial institutions continue to blur, open banking is booming, with the market size estimated to reach $43.15 billion by 2026, at 24.4% CAGR, according to Allied Market Research.
It’s easy to see what’s so appealing about the benefits that open banking offers. The structured sharing of data via tokenized, credential-free API connections moves the industry beyond outdated legacy connectivity (replete with screen scraping and broken connections) to modern connectivity — giving users reliable, secure, and fast access to accurate information along with the ability to share and revoke that access as needed. It creates new opportunities for financial institutions, fintech companies, and consumers alike.
Here are five open banking use cases worth being aware of.
1. Fast and Secure Payments
Because open banking enables financial services companies to validate account numbers, account ownership, and account balances within seconds, it not only paves the way to replace microdeposits as a means of validation, it also enables new methods of recurring payments as well as point-of-sale payments. For instance, landlords can use open banking to validate that there are sufficient funds before making a request, cutting down on the need to deal with bounced payments.
2. Augmented Credit Scores
By aggregating account and transaction details via open banking, financial services companies can obtain automated insights into spending history. Brent Chandler, CEO at FormFree, says, “With new data, we can do different things. We can look at residual income, discretionary income. We can understand a consumer’s ability to pay. We can add vectors against component analytics that understand ability to pay. We can algorithmically use intelligence to understand how much you can afford and do it safely, and allow banks to have transparency into consumer risk.” This and more is possible with open banking.
3. Personalized Marketing Offers
Once you have insights into a range of account and transaction data from a variety of accounts per user, you have the capability to create personalized marketing campaigns. Does a particular user fly far more than average? Offer them a card that gives them rewards for flying. Does another user have a loan with one of your competitors? Use the data to get a better offer from your institution instead. Whatever a user’s situation might be, you can use open banking to make far smarter marketing decisions.
4. Loan Origination
Instead of relying on dated processes such as paper and signatures — or even digital PDFs — customers can use open banking to provide permission to share the data with a lender of their choice. At first glance, this benefit might not seem like a big deal. However, given that over 50% of people say they’ve abandoned a financial application, with 34% saying they did it because of the length of time it took to complete the forms, and the power of open banking makes more sense. Put simply, open banking speeds up the application process, simplifying something that currently is far too much of a headache for many people
5. Financial Wellness Tools
As you have access to more and more data via open banking, you have the ability to offer real financial advice. Without this, it’s hard to be much help. After all, you might suggest that a user put their money into a 401(k) but fail to see that they actually need to put additional funds into paying down a particularly high debt. Only with a 360-degree view into a user’s finances can you offer truly helpful financial advice, giving each user the nudge they need depending on their exact situation.
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Taken together, open banking offers enormous benefits to financial institutions, fintech companies, and consumers alike. To learn more, read the MX Ultimate Guide to Open Banking.
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Source: https://bankautomationnews.com/allposts/cust-xper/5-use-cases-for-the-booming-open-banking-market/
