Open banking has undoubtedly become a go-to for companies who are on a journey to modernise their financial, administrative and development procedures. In a post-pandemic world, e-commerce also drove adoption rates up, and presented new business opportunities for those who seized this unique chance.
The revised Payment Services Directive (PSD2) – a regulatory framework designed by the European Union – brought about important changes to the way that financial data can be attained and shared.
What seemed like a small step, is now seen by every player in the financial space as a disruptor, forever changing the way incumbent banks operate. To put it simply, this legislation gave the control of financial information back to the consumers, after a period where banks basically monopolised this very relevant data stream.
In short, open banking grants regulated third-party providers access to financial data that can then be used by these new players to build tailored products and services. This levelling of the playing field has serious positive repercussions on consumer rights, security and experience.
It is now up to every individual consumer to decide how much information they are willing to share, and with whom they want to share it with. Not only that, but this data sharing can only be achieved with specific consent from the end user, granting him the final word on who can access some of their most sensitive information.
Open banking: a game-changing ally for businesses
Whether we’ve noticed it or not, open banking has been a part of our lives for a few years now. But what does this new technology really mean for businesses?
Every business can take advantage of open banking, but it’s safe to say that small and medium-size enterprises (SMEs) are the ones that can leverage it in a more positive fashion.
Open banking can push the economy forward by aiding SMEs
First of all, there is the question of better competition, by tapping into new sources of relevant information through the lens of the PSD2. Previously, access to this type of data would mean a great deal of monetary investment, and SMEs are not usually known for their economic prowess.
On the other hand, there is an accessibility advantage, as open banking grants secure access to relevant financial information via state-of-the-art Application Programming Interfaces (APIs). Long gone are the days of screen scraping and reverse engineering, and the large amount of manual processing that was required.
As if this wasn’t enough, we must also look at the impact of open banking on development, which can probably be best described through the lens of the lending industry. Factors like creditworthiness and risk assessment can be substantially improved by this new technology.
Traditionally, lending institutions had to deal with many manual processes and bureaucracy, which would most likely lead to mistakes and miscalculations. This would prevent them from asserting a customer’s true general financial situation. Open banking data can fill these gaps, paving the way for a better slate of products and services, with the added benefit of improved product comparison and monitoring tools.
Main benefits of open banking for businesses
Let’s get right down to the thick of this question. Open banking can benefit consumersas well as businesses, especially those who don’t yet take advantage of large corporate structures and resources.
Here are some of the main benefits that businesses – especially SMEs and e-commerce platforms – can reap from adopting open banking services:
- Efficiency: it’s pretty evident that, especially in today’s economy, keeping a small or medium-sized business is not an easy task. There is a lot of micro-management involved, from accounting to payroll. Open banking can help, by facilitating access to relevant financial data. By entrusting third-party providers with these tasks, owners can funnel their resources to other key areas, such as marketing and customer experience;
- Automation: digital automation is a must in today’s world, and this can be achieved by easily accessing data via integrated open banking systems. Automation is very cost-effective in the long run, not to mention its importance in a digital-first world;
- Easier access to loans: smaller businesses can struggle to meet certain financial obligations. Open banking accelerates loan eligibility screening, by eliminating manual submission of financial statements and other documents. Everyone involved saves time and resources, easily getting to what matters the most;
- Reduced costs and fees: open banking helps merchants reduce their service fees, as it doesn’t require as many Point Of Sales (POS) terminals or card readers. Open banking payment APIs remove transaction fees and most operational costs, especially when compared to the ever-present card payments;
- Light-speed settlements: every business struggles with the time needed to settle funds. It’s an unnecessary nuisance that can take days when using cards, but it’s an instant process with open banking. No more worrying about payments, as open banking provides immediate peace of mind;
- Higher conversion rates: a well designed checkout flow, something oftentimes present in open banking payment solutions that offer multiple options, can definitely improve customer satisfaction, and therefore reduce shopping cart abandonment, which translates to more sales and more revenue;
- Greater customer experience: this is a topic that many do not take seriously enough, with a great negative impact on a brand’s general perception. Open banking helps businesses achieve a more positive customer experience, by biometrically securing mobile banking payments instead of asking for your login details. Access to more relevant data also allows merchants to better understand their customers' needs, and therefore offer more relevant products and services – making for a customer-centric approach that is paramount in today’s economic landscape;
Open banking: next-gen digital services that benefit everyone
This new era of financial data sharing allows even smaller companies to compete on the same playing field as their bigger counterparts.
All of this translates to a new generation of financial services, especially in the digital space, that have the potential to:
- Reduce costs and time by streamlining legacy procedures;
- Enhance reliability by introducing zero-trust cybersecurity protocols like Strong Customer Authentication (SCA);
- Aggregate several accounts in one place for a better overview of your overall financial situation;
- Provide data that can be used to upgrade the decision-making process;
- Improve risk assessments, which can positively transform the lending industry;
- Quickly make and receive payments, removing unnecessary costs;
- Increase customer satisfaction, boosting retention and monetisation;
This constant stream of new information grants everyone the power to develop greater products and services, addressing specific needs of specific customers and even whole markets.
Everyone wins, from the average consumer to the businesses striving to get awesome products to the market, not forgetting traditional banks that can modernise procedures and present themselves as credible alternatives to FinTechs.