The financial industry is experiencing requisite changes and staying sharp for business has become crucial. If a financial institution is not agile it can easily fall behind its competitors and suffer fundamental revenue loss. Simultaneously they have to follow regulations while ensuring absolute compliance and security. Therefore, every open banking platform is designed to provide effective and secure services to financial institutions’ customers.
Legacy banks are the ones struggling to keep up the most since they have outdated mainframe solutions which slows down all operations and innovation processes. Due to open banking and its purpose, there is a bright future ahead for the banking industry. It is possible that the majority of all financial transactions will be processed not through bank-owned infrastructure, but Third Party Providers (TPPs) and fintech companies.
The purpose of open banking is to enable protected information sharing within the banking industry. It allows Third Party Service Providers (TPSPs) to access customer’s financial data through banks and other financial institutions. TPSPs can gain access by utilising the Application Programming Interface (API). This method of information gathering and fund transfer is extremely innovative and follows the evolving economical needs. It enables fast and secure transactions from anywhere while creating more financial management opportunities for individuals and businesses.
Open banking platforms can be utilised due to modern technologies and regulations that allow the development of new banking products, models and incorporate e-commerce capabilities. Most importantly open banking is customer-focused, therefore, growing consumer expectations become easier to match and bypass. The reasons for open banking success can be divided into three main categories - developments in banking regulations, evolving culture and innovative technology.
Open banking improves financial life not only from the provider's perspective but also benefits the end-user. It creates more and better choices for financial services and products, improves customer service quality and enables frictionless digital transactions. For instance, it makes it possible to use Paypal or even Facebook for fund transfers with only a couple of clicks. There is no need to go to a personal bank account, log in, enter the recipient details, account numbers etc. Now a user can simply select to whom they want to transfer money and with one click it happens. Even more, technologically advanced users can do this action without ever touching the smartphone or any other device - they can ask Alexa or Siri to initiate the transaction for them.
Another great benefit for end-users coming from an open banking platform is easier finance planning. A person or a business can download an app from a TPSP and access all their banking accounts in the same place, even though they use multiple banks or financial institutions. TPSPs safely access that information and gather it to portray in the app for the consumer. Often these apps even have additional analysing options which help to reduce expenditure and calculate if a consumer is ready for a new loan.
Both instances can happen due to advanced technologies, strict regulations and the creation of agile banking methods. It is like heaven for developers who had their hands untied and could let their hair loose. The increased automation processes and less manual work means happier customers and financial savings for a service provider.
Open banking indicates the change in financial information movement between banks and TPPs. A business willing to become a TPP must undergo several procedures and get the authorization together with a license. The banking industry has noticed that there is a lack of regulations for certain types of financial services, therefore, a Second Payment Services Directive (PSD2) came to life in 2018. It created the regulations needed to secure the market and put financial data control into consumers hands.
By gaining this control consumers had more choices and weren't tied to their bank forever. Consequently, customer service started to improve, since financial institutions didn't want to lose their customers. Due to this shift in power the growing numbers of innovative TPPs started to look for open banking platform providers that are ready to leverage the current market situation and its expanding requirements.
In the following list, you will find out four ways and reasons for choosing the best open banking platform providers:
Open financial ecosystem. The key element that open bank has done to shake up the industry was the collapse of barriers for new entrants. It presented an opportunity for smaller TPPs to enter the already established banking system while utilising legacy banks infrastructure. The open banking platform providers now became a part of the banking ecosystem and consequently encouraged competition among the participants.
The TPPs can address the issues that legacy banks have failed to recognise and create specific solutions aimed at these pain points. Whether it’s financial information aggregation, mortgage application or financial service subscriptions - consumers can access it all in one dashboard and enjoy the fruits of open banking.
There is a type of open source core banking platform that offers a white-label service by providing technological infrastructure. It allows TPPs to enter the current banking ecosystem while keeping brand identity by modifying only the front-end design.
Brand equity equals trust. The key issue for new fintech companies or any other TPPs is that they are new and have no consumer trust. Meanwhile, the legacy banks took action to gain trust and attract new customers in the previous decades or even centuries. Therefore, people know the name of the bank and have particular associations that they grew up with. Technically, legacy banks do not have to do anything to gain consumer trust. However, TPPs have no brand equity and can cause alarm going off in the consumer’s head if they offer their services.
Fortunately, the younger generations are more open to new services and not so much attached to their banks. As a result, they are more likely to use a product or a service that is not directly administered by the legacy bank. Open banking allows exploiting this shift in attitude by integrating TPPs services within a secure open source banking platform. This way the trust and credibility increase while helping grow brand equity.
The supreme open banking platform providers will indulge frictionless relationships with financial institutions and end-users to allow TPPs to access reliable and secure financial infrastructure that consumers trust.
Easy to use interfaces. Customers prefer to access all their financial information in one place, therefore, by finding reliable open banking platform providers TPPs can streamline the customer experience. They eliminate logging into different accounts or apps and trying to count and compare financial information in each. Instead, a TPP can aggregate the data and present it clearly in a comfortable interface according to the customer requirements. The overwhelming customer journey becomes smooth and extremely fast with the automation provided by the open source core banking platform.
Outsourcing means cutting costs. For an emerging TPP to create regulation-compliant infrastructure and ensure security would be a mission impossible and require enormous investments. Consequently, to be more competent and have the ability to compete within the banking market TPPs should outsource their technical infrastructure. Finding a trusted open source banking platform aids with lowering initial costs and also eliminates the need for additional investment in the future. Depending on the platform, in most cases, there is no need to pay for the maintenance, updates required by the regulations, legal issues and sometimes even customer support.
You may wonder what is an open banking platform? It is exactly like what it sounds like - an interface or an app that provides a secure way of managing funds from various banks and financial institutions in one place. With an open banking platform, a user can follow account balances, transactions and even initiate payments from any of their financial institutions without ever going to their banking account.
Hopefully, after reading this text the clarification of what is an open banking platform came to you and now you understand that an open banking platform is all about the correct choice of a provider that can open doors to more opportunities while ensuring reliable and secure infrastructure.
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