Open banking is, in essence, a change in the industry that is making access to financial data simpler, allowing innovation and increasing competition in the financial services industry. Consumers have more power, and they can share their data, making it possible for businesses to offer a range of fresh, smarter, data-driven products and services.
The idea of open banking in which customers can decide to share their financial data with providers outside of their banks, is a relatively new concept, bearing in mind how long banking has been around. It has rapidly gone from theory to existence and many countries around the world have created guidance and regulation to monitor how open banking should work.
If you’re interested in the hype, it all comes down to the significance of data, and being able to use it applicably. Whilst we are in an instant, fast-paced, one-click, digital world, data is extremely important.
How does open banking benefit people?
This is a great question – as mentioned data is an extremely valuable asset. It basically should give consumers full ownership over their financial data rather than the financial institutions that manage their money and accounts.
Previously only banks had privy to this information, which didn’t provide a great deal of options, and also meant they were tied into a lasting relationship with their account holder. However, with open banking, clients can use and share their data to their own preferences, regularly obtaining valued new services and a more suitable and convenient digital connection.
So, for example a customer is very happy with their bank, but they need an extra service that it does not provide. With open banking, they can access this via a third-party service which has the features they want, meaning they do not need to change banks or do it themselves manually. They can also choose between a much wider range of financial services and pick the most competitive or the one who offers the most suited experience. This means they could potentially use one app for investments, one for accounting and another for managing subscriptions.
How are businesses benefiting from open banking?
At a point of repeating myself again, data is a huge deal, and the ability to use this effectively can open multiple doors of possibilities for businesses and entrepreneurs everywhere. Not only does it give businesses the ability to supply new services, that would have not been possible previously, it also enhances their existing offering. The data can be applied in multiple ways not only to give customers a more personalised, exclusive experience but also to solve many of the issues that arise during the customer journey.
Things that can be solved with open banking
I can imagine if you’ve got this far you might be wondering what types of new digital experiences are on offer, or how this financial data can be used to resolve these challenges in businesses. I have listed a few examples below of how open banking can be used to add value to businesses and their consumers.
- Simplifies the onboarding process for financial services.
- Streamlines the KYC procedure.
- The process of customers settling invoices or transferring funds becomes much easier and clearer.
- Can provide financial coaching which can be personalised.
- Can enhance credit scoring and also verify someone’s income when making any risk assessments.