As basic economics shows us – an open and unrestricted market works the most efficiently and brings the most benefit to consumers and suppliers/manufacturers alike. The same can be said about Open Banking. It embraces the best micro and macroeconomic principles in theory and brings them to the real world.
Information is key and financial services are no exception. In order to develop products/services in the financial sector, you need information and data. Lots of it. This is where an Open Banking Ecosystem comes into play. As a concept and ideology, Open Banking enables businesses to better meet the needs of their clients through a dedicated application programming interface (API).
Open Banking is a concept of financial markets in which, conditions are met for businesses and service providers to access data, gathered by banks and other financial institutions. There are regulations and rules as to how and what data can be shared, focusing on the benefit of the end-user without compromising data integrity, sensitive data leaks, or data volatility.
Open Banking is only applicable and usable IF the customer agrees to share data. If they do not express consent, Open Banking services won’t be initiated, ensuring total security and integrity throughout every step of the way.
Open Banking will never work if only the service provider or the bank wants to do it. The customer has to see the benefit and agree, ensuring that the services and products, offered in exchange for the sharing of data, lucrative, well-suited, and more relevant to whichever consumer they’re presented to.
And the ecosystem of Open Banking just means the wide array of services that are made available through Open Banking as well as all of the market participants. Or, in short – the Open Banking market, as a whole!
There are a lot of application possibilities for the Open Banking Ecosystem. As the definition says, Open Banking allows customers and private as well as corporate customers to have the freedom of access to quicker and more convenient services. In simpler terms – whenever a client chooses to do so, through Open Banking, they can access and get something done faster and quicker.
Open Banking is a very flexible ideology that can be utilized in almost any niche and/or sector.
Most customers, especially in the private sector have major concerns with financial institutions opening access to their data. However, the EU, the current leader in Open Banking, has strict and very flexible regulations like PSD2 and others that protect sensitive information and prevent commercial entities from misusing whatever you decide to share with them.
In the real world, Open Banking Ecosystem (Exposed) services allow for a lot of benefits. You can expect much more automation within many different services. Where there was previously a need to spend too much time trying to input data or authorize imports of data, everything could become automatic. There’s also talk of increasing presence of “Robo-advice” or more precisely – advice and personalization with the help of AI tools.
Personalization and plain availability of goods and services is the next item worth noting. Things like loans with optimal terms and conditions might not be available for some customers whilst Open Banking may enable them to use these opportunities.
Here is a list of the main benefits from Open Banking
· Grouping of services – instead of being forced to log in and out, you can access services for different accounts from one data center (also known as aggregation)
· More optimized and faster payment solutions – businesses who utilize Open Banking services can implement their own services and products with the added benefit of quicker and more transparent transactions at a lower cost.
· More data for insights – tools for Open Banking are also capable in terms of analytics. Group and view historic data, find bottlenecks and learn where to upsell, etc.
· Improved conditions for loans and borrowing – Open Banking allows service providers to access relevant historic data to ensure that every request from a client can be evaluated thoroughly and he/she/they may be offered the best borrowing terms!
So, this is what Open Banking ecosystem (exposed) services allow this concept to grow and become an ever-larger presence in the financial market!
Reports and general practice show us that Europe is leading the way for Open Banking Ecosystem. With both local regulations active in many countries, alongside trailblazing legislature from the EU, Nordic countries as well as the Baltic States, alongside France, Germany, and the Netherlands are the hotspots for Open Banking innovation.
These countries, however, are still behind the leading innovator – the United Kingdom which already has over 3 million active consumers both in the private and corporate sector, taking advantage of Open Banking systems.
Leading fintech companies have already created an Ecosystem that is significant in the whole world of finance. All startups and fintech companies operating in this field are worth close to 20 billion $ as of 2021 and that number is predicted to grow to double the amount by 2026, according to AlliedMarketResearch.
Experts note that Nordic Banks are already starting to embrace the Open Banking strategy. However, when noticing the leaders, a lot of other markets and startups from other countries are often overlooked. The Open Banking Ecosystem is designed to eliminate not only technical obstacles but also physical borders between different markets. This increases the availability of high-level financial services to any person or business, regardless of their location because the ecosystem is aimed at opening up more opportunities.
In some countries, you can see Open Banking utilized for domestic payment solutions, whilst others, predominantly Nordic countries are doing just what we mentioned above. Their P27 initiative seeks to break down barriers and establish a pan-Nordic payment infrastructure, making international business that much easier. On the other hand, you can also see some countries enabling Open Banking infrastructure to pave the way through the transition from legacy banking, creating a new standard for payments and other financial services.
Nordigen strives to be amongst those, paving the way and creating a new ecosystem, more suitable, more versatile, and more modern – tailored to the specific needs of clients by making better financial solutions available for everyone!
As fewer and fewer countries are asking What is an Open Banking Ecosystem is and begin to wonder how to implement and benefit from it, the EU and the UK are leading the way.
For the foreseeable future, we can notice many different trends that could be emerging in the coming years.
The goals and aims seem to correlate with whoever is leading the innovations in those respective regions. For the Nordic countries, where leaders are the banks, it seems that the main goal is a sustainable pan-Nordic Open Banking sector with financial services accessible to residents and businesses, regardless of their location. It’s an ecosystem that brings businesses closer to the consumer and is adjusted to the current trends of Nordic and European societies. On the scale that it’s being developed, P27 could revolutionize the way regional banks do business and other regions like the Baltics, Central Europe or the Benelux can soon follow Scandinavia if the implementation is successful enough.
For the UK, the goal seems to become a global leader in fintech innovation, with Open Banking software solutions being an integral part of reaching that goal. Their approach is headed by the government and legislative organs alongside emerging businesses. The government is issuing licenses and permits for new startups to launch in the United Kingdom. Since UK banks are being more careful with their approach to Open Banking, it’s all about market penetration for those startups and getting more and more private and corporate clients along the way.
As for the rest of the world, Open Banking is mostly a very niche market. The US and Far East countries are closely monitoring the progress and benefits that the European countries are able to get. Once enough potential is visible, it’s likely that they’ll soon follow!
Nordigen is an EU-based company that focuses on freemium Open Banking data services. Enrich your current data with dedicated APIs which allow you to simplify and streamline financial processes and transactions.
The Account Information tool provides you with a direct connection with 2,000 banks in Europe. Developers can utilize the vast array of information, with consent, deprived of spending too much time trying to gather it. This tool is tailored to developers who want to offer continuous access to information, relevant to the user’s financial records and historic account data. It’s entirely customizable.
Transaction Categorization is a practical tool with everyday benefits. Automate transaction identification and make the user experience much more fluent. The service has coverage with 19 markets, in which it is currently live. Seamless integration won’t disrupt present plans and top-notch outputs will be updated continuously.
Finally, there is the Insights API. Suitable for verification, analysis, and moderation, Insights is great for lending, risk management, scoring, etc.
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