Open banking is a banking practice that securely gives third-party financial service providers access to financial information, known as open banking data. This access enables downloading and sharing of information regarding account balances, payment transactions and investments (Irrera, 2021). Sharing data is done through the use of application programming interfaces (APIs) and only with the consent of customers. All third party financial service providers must follow data protection rules, which includes informing customers which data is being used, how long for and what they will do with it (Noble, 2020).
A new type of data to understand customers like never before
Each financial transaction creates data. The democratisation of data, thanks to open banking, turns this data into a valuable resource (Experian UK, 2020). The value of the data comes from analyzing and extracting insights from it- making open banking data very rich and providing up to date information about each consumer. It also enables customer-mapped data aggregation (Experian UK, 2020).
Customers are expecting more and more personalised experiences and services. That demand can be fulfilled by using open baking data to understand what customers want and deliver it to them (Experian UK, 2020). Third party financial service providers are able to leverage open banking data not only to personalise their services to the needs of their customers but also to develop new and innovative solutions.
The driver of collaborative innovation
PSD2 was developed to even the playing field and increase cooperation and collaboration between fintechs and traditional banks. Open banking has made it easier for new market entrants and payment institutions to gain access to the market and, as a result, increased competition and choice for consumers (European Commission, 2018).
Open banking brings many opportunities for app and business development. And the list of innovations is endless. From helping customers reduce debt to facilitating better credit scoring, access to open banking data has already resulted in a range of new products and services (Ridelle, n.d.). Open banking is the driver behind both innovation and competition in the financial industry.
The data of the future
Thanks to the power of open banking data, fintechs are transforming operational challenges into opportunities to cut cost and fraud risk, improve employee productivity and become more strategic (Ridelle, n.d.). Having the right data aggregation and tools to make sense of multiple data sources as well as understand what customers really want is the key to secure the benefits of open banking (Experian UK, 2020).
And open banking is just getting started. With new technological advancements comes new innovative solutions. Advancements with cloud, AI and 5G technologies alongside the need for responsive and personalised customer experiences, means businesses will need to keep active in order to remain competitive (Experian UK, 2020). These advancements will depend on financial information to succeed- rendering open banking data even more invaluable (Ridelle, n.d.).