In today’s digitally-powered world, collaboration is a given. Open banking is unstoppably aiming for the mainstream on the strength of application programming interfaces or APIs and new regulation.
However, it’s essential to begin this article by clarifying what open banking is.
What is Open Banking?
The term “open banking” will have relative meaning, depending on who’s looking at it. In Asia and North America, open banking is an extensive collection of API-based connectivity that improves available opportunities for sharing account and balance information.
Account aggregation through API, where banks allow their clients to access their accounts from multiple banks with one login, is perhaps the most common application of open banking.
In Europe, though, open banking specifically deals with components of the PSD2 or Second Payment Services Directive, including:
- Payment initiation or PISP
- Account information or AISP
APIs are critical elements in both scenarios.
In a nutshell, open banking means making secure interoperability possible in the banking sector. The way to do this is by allowing third-party payment services and other financial service providers to access banking transactions and other data from banks and financial institutions.
Third-party institutions may safely access secure open data through APIs.
Open banking is too obvious to ignore, and it’s essential to assess how APIs influence the corporate treasury approach to business. The reason is that banks are increasingly alert to ways by which they can combine their software tools with fintech products for more straightforward and better treasury processes and controls.
The global economy is evolving, and open banking is growing in popularity. Transactions are faster and more secure, offering consumers more opportunities (through third parties) to manage their finances.
It’s essential to review how APIs are redefining the payments industry and how open banking is beneficial to business.
The Mechanics of Open Banking
How does open banking work anyway?
A combination of technologies, regulations and services make up the core of open banking. There’s no way to pretend that this is simple, even if the emerging financial products appear to be so. However, open banking aims to help developers build new banking services, banking business models, and new commercial capacity.
Open banking needs the fuel of modern customer expectations and technology-focused regulations to thrive. If any three forces synergize well to make open banking a reality, they are:
- Changing banking regulation
- Changing cultural inclination
- Changing technological leanings
The consumer stands to gain three things in a thriving open banking ecosystem. They include:
- More choices
- Improved services
- Smooth commercial processes
It’s absolutely your choice to use any of Amazon, Apple, Facebook, or Amazon to send money or gifts in a secure way to friends or family. Besides, all it takes is a click or a swipe. The sheer fun of the activity trumps the traditional rigor of logging in to your bank account and entering payee account details. You only click “Send $200 to Toni,” and you’re on to your next task. You can also achieve this by asking Alexa, Cortana, or faithful Siri.
How about a scenario where you want to use a third-party financial planner who needs to secure access to your accounts. Open banking allows that financial planner to gain secure access to your spending habits painlessly and securely.
New technology and technology-centric regulations have made risk and compliance attractive by making banking systems more automated, agile, and intelligent.
With open banking, third-party payment providers can easily and securely access personal and financial information. The customer only needs to grant access for the sharing of information. All you need for this is an online consent form. APIs make it possible for the third-party providers to access the relevant shared data.
APIs facilitate transaction processing between banks. They can also identify suitable financial products and services based on a customer’s financial history. It may be a credit card offering a lower interest rate or a savings account that earns more interest than the customer’s current one.
Data is an essential piece of every open banking API call. Agile access to data is the first base in an innovative system. However, the fintech landscape is replete with companies relying on multiple incoherent data sources, real-time and streaming data, and organizational bureaucracy.
That’s why an efficient integration system is necessary because you need a holistic and accurate view of all data. The data itself needs to be accurate and current. Integration ensures you can expose the data in your applications directly and securely through APIs.
Data integration usually happens through either application or physical integration, or data virtualization. The former enables secure direct API calls to your backend systems, while data virtualization uses an integrated virtual layer of data instead of physically combining all sources.
Both methods help tame your data swamp.
Why Open Banking Matters
Here’s a summary of the many few benefits of open banking:
- The ability to connect data from multiple accounts and efficiently share data among several entities.
- The ability to access networked accounts by both the consumer and the institution, allowing them to make appropriate financial decisions.
- Businesses can leverage new technologies to lower costs.
- Improved time to market for new products.
- Prompt access to real-time customer service from financial providers
- Opportunity for expanded product offerings via new business channels.
Conclusion
Open banking sets the stage for foundational changes in the banking industry.
Consumers crave comfort and mobile apps, and governments are showing support with positive regulation.
With the right strategy, banks can deliver open banking offerings in a mutually beneficial way.
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Source: http://hrnews.co.uk/what-is-open-banking-and-why-does-it-matter/
