In our increasingly digital economy, building customer experiences is critical. For industries that deal with credit risk and are challenged to simplify customer onboarding flow while acquiring enough information to provide the right service to a customer, open banking is very useful.
Open banking is a concept that allows customers to share their bank account information with a service provider. This is typically done in an automated way using APIs, as soon as customer has provided her consent for accessing her bank account data. Open banking has been used by top tier financial institutions since the late 90’s, but today service providers from any industry are able to use open banking technologies to create digital customer experiences.
Open banking in many cases allows service providers to get the following information from their customers' banks:
identify information — name, address, personal ID code, contact details, bank account number;
account balance — the outstanding amount in the customer's current account;
transaction history — the last 90 days but can be more in specific cases.
Open banking works a bit differently across regions, but the main principles of open banking remain the same. Below are the main steps involved in digital customer on-boarding, where a service provider uses open banking to on-board a customer.
1.Customer visits a Service Providers website and chooses a service.
2.Customer is asked to share her bank account information with the Service Provider.
3. Service Provider retrieves the Customer's bank information in seconds.
4.Customer is redirected to the service website and is good to receive the service.
In this example the Customer only had to log in to their bank account to provide the Service Provider all the data it needs to offer a good service. No long application forms are needed — most on-boarding questions can be answered by the information available in the Customer's bank account. The process of acquiring account data from a Customer's account or connecting to Customer's bank is called Account Aggregation.
The value that open banking brings to customer on-boarding is that companies no longer have to choose between more customer information / low conversion rates or less customer information / high conversion rates. Companies can have both — more information AND high conversion rates.
Based on the service provider's business model, there can be an array of applications for open banking. Here below we have listed a few of the most well known use-cases already used by banks, lenders, fintechs and insurance companies.
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