Open banking is growing at a very fast pace, there is no denying that. This new concept is spreading worldwide, even though its European genesis contributes to it being more of a phenomenon in the old continent.
By now, the definition of open banking (OB), as well as what it brings to the table, are common knowledge to those who follow the intricacies of the financial markets. Nevertheless, it’s always wise to ask three important questions when analysing the repercussions of open banking:
- What is open banking?
- Will consumers embrace open banking?
- How will they benefit?
The first question can be answered quite rapidly and shortly. Open banking gives third-party payment services and financial service providers access to consumer banking information, such as transactions and payment history. This is done through secure and regulated application programming interfaces (APIs), and can only happen with the customers’ explicit authorisation.
The second and third questions also have a very direct answer. Consumers are already embracing open banking, and reaping the benefits of this technology that is keeping financial products and services up-to-date with today’s financial needs.
In recent years people have understood that by sharing their bank account data, they are enabling third-party providers to use that information wisely, creating tailored products and services that remove old barriers and make everyone's lives easier.
In this particular article, we will try to enumerate the main benefits of open banking for the common user. Hopefully, this list can help you understand not only what’s already available, but also what can be done to persuade those who feel some sort of reluctance towards open banking.
Let’s get this show on the road.
Control over your financial data
Open banking legislation was created with the aim of giving customers an absolute control over their financial information.
For example, the use of modern APIs makes sure that your login details and passwords are only accessible to you.
Even better, the customer has absolute control about who can access their banking data, and is able to decide the level of access. This makes sure that only relevant information is at the third-party’s disposal.
Since open banking also promotes new ways of paying for products and services, companies are unable to take payments without the customer’s say-so.
Better understanding of personal finances
Through account aggregation, open banking is capable of displaying data from multiple bank accounts in one streamlined view or application.
We live in a time where more and more people have more than one bank account, which can make it hard to have a complete understanding of everything that is going on in every single one of them.
This can be very harmful, as it may impede a true perspective of one’s financial health, leading to unforeseen expenses, rejections and even unexpected maintenance fees.
Smarter personal finance management
The data collected from this unified view can be used by third-parties to recommend better financial practices.
This includes recommendations about better credit card options, or even loans that are adjusted to your earnings and expenses and can really help you achieve your goals.
Relevant financial data can be used to provide customers’ with tips on how to save money, without disrupting your daily habits. After you save some money, you can even access recommendations about where to direct those savings, if your goal is maximising returns — be it through investments or interest.
Tailored financial products and services
We live in a substantially different world than the one our parents used to live in. Everyone has specific backgrounds and needs, so it can be hard to find financial solutions to specific situations that arose with modern age.
Since open banking relies on multiple accurate data sources, it is possible for companies to understand what their customers need and build appropriate products and services.
On the other hand, when customers’ grant access to their financial information, they are enabling products and services that take their specificities into consideration. This will grant a superior experience and make sure everyone’s needs are attended to.
The myriad of solutions that can be powered by open banking also promotes choice. Customers are now able to select between different options that are presented in a transparent fashion, contributing to an improved experience and, of course, optimal results.
Instant online payments
Open banking also revolutionised the way we pay for products and services online. This was particularly important during the COVID-19 pandemic, but it’s something that is here to stay.
If account information promotes access to banking data in order to help us regain control of our financial lives, payment initiation allows for more convenient and safe ways of going about our online purchases.
Customers are used to paying with credit or debit cards, but we’ve all come to realise that these are convenient until they’re not. Mistakes with this kind of payment methods can lead to considerable headaches and even the loss of capital through unsuccessful transactions.
Open banking payments can be compared to instant bank transfers, with a much lesser failure rate and the possibility of instant settlement. As if this wasn’t enough, the adoption of open banking payments can also mean the end of preposterous fees.
Since OB transactions are completed almost in real-time and obey high security standards, there is a lot less room for anxiety as we are sure that our money went to the right place.
Payments have to go through Strong Customer Authentication (SCA) protocols, which helps reduce fraud by adding an important extra step to the authentication process: usually this involves a redirect to one’s bank application, and the user only has to confirm the transaction — no credential sharing of any sort!