What is Open Banking?
Open banking, known as “open bank data”, is a banking practice that provides third-party financial service providers with access to financial information from banks through the use of application programming interfaces (APIs). Customers are normally required to grant approval to let the bank allow such access. Third-party providers’ APIs can then use the customer’s shared data.
Overall Benefits of Open Banking
How does it benefit Customers?
Opening banking allows customers:
- To have greater control over their data;
- To have a better experience in a secure and agile method;
- To have the freedom to select from multiple service providers available;
- To take charge of their finances and make informed decisions to manage their accounts;
- To make their payments easily by using digital wallets without having to wait in long queues to make purchases;
- To make remittance and currency exchange in a very secure and seamless way;
- To transfer money and pay bills seamlessly by using one single mobile app;
- To get customized product offerings;
- To receive a valuable service or product based on their personal experience and historical data under the concept of personalization;
- To have access to multiple accounts in one place;
- To benefit the best deals with greater transparency;
- To open to innovative services;
- To have all financial data at one place which empowers them to take credit decisions;
- To generate new revenue streams; and
- To create a long-term sustainable service model for the industry.
How does it benefit Financial Institutions?
Opening banking allows financial institutions:
- To explore data-sharing agreements with fintech and other non-financial service institutions;
- To understand the data privacy and the likely changes they need to adapt for a better customer experience;
- To enhance and extend their service offerings;
- To increase revenue from new channels;
- To improve overall customer engagement; and
- To fulfill the constantly changing demands of both existing and prospective customers.
Open banking initiatives and the fundamental role of APIs plays a very effective role to wake up the financial services firms. Initiatives banks should develop their system to cope with the competition and develop in that industry to avoid being dispensed by new entrants with superior offerings and services. So around the world, we noticed that we should give great attention to that new Service which redefined the financial landscape to develop and enhance customer engagement and enable them to meet the changing demands of existing customers as well as appeal to prospective customers and increase the profit as well.
By opening banking, traditional banks can appeal to existing customers, who see that their bank is providing innovative native services and moving beyond the traditional definition of what a bank is and what services it is expected to offer. In addition, the bank also appeals to prospective customers, because their current bank does not embrace Open Banking APIs and, as a result, they are unable to use the latest innovative technologies. Consequently, by launching Open Banking, banks are able to better retain existing customers and attract prospective ones.