Open Banking Technology

You cannot talk about fintech solutions without focusing on the technology that drives them. With open banking, it’s more of the same. The ideas of having a more accessible and interlinked ecosystem of financial services are alluring on paper, but making it work is only possible if the right and innovative technology is being used. Open banking technology is fascinating, efficient, transparent, and has huge upside potential with all of the properties for scalability.

Let’s focus on what it is and how open banking technology is trying to become the next big thing of the financial sector.

Any open banking system has many different integral parts and vital components that make it work. There is the backend part (the database & the bank) the TPP and most importantly – the open API, around which, the whole process revolves and is focused on.

Creating more agile products isn’t something that’s very easy to do, especially in a market as competitive for open banking as the European Union and the United Kingdom are. The technology has to work within the boundaries set out by the regulators (the PSD2, the EU GDPR, etc.). In addition to these constraints, open banking technology has to improve, adapt and change along with the needs of its customer base.

If you ask the general questions of What is open banking Technology – it’s usually focused on the core of the principle – API. An API or Application Programming Interface is a digital connection that is established between one piece of software and another or between two or more computers. The Application Programming Interface is used in open banking because it is the most efficient way to allow the movement of open data securely, between financial service platforms.

Open Banking Tech & Risks

The current generation of fintech is changing the world as we know it. The traditional approach by, usually very conservative banks, is facing rapid competition from emerging smaller financial service providers. This creates the necessity for the banks to innovate and to progress, making them have a look at how open banking technology can bring in benefits.

As of right now, implementing the principles and the tech of open banking requires a whole new way of thinking, sometimes even revolutionizing a part or significant parts of present technological architecture for financial companies.

Even though the tech aspect is very alluring, there are still many areas of concern, especially for the banks, in terms of communication with the TPP, the PISPs, and others in order to establish sufficient security and transparency for transaction management. This is the part where the know-how from fintech experts at those TPP and PISP companies should come into play.

Most financial companies are also shying away from immediate transitions to open banking because it would mean giving up a significant chunk of their own control. In smaller or oligopolistic as well as monopoly markets, big banks control so much that in the short-term perspective it might not seem like the right move to make. However, in the long run, regulators could even enforce transitions and transformations into digital, which wouldn’t be convenient.  

Open Banking Technology Benefits

Every time technology can improve the concept of open banking, better financial services become more and more accessible. APIs with analytical capabilities are able to automate certain processes (such as transaction categorization, aiding with budget planning and expenses tracking). Furthermore, Open Banking technology can quickly and more precisely determine the creditworthiness of a client, analyze more historic data and recommend more suitable financial products.

In current times without the technology of open banking, financial institutions only gained access to a limited amount of information about the financial situation of their client. With open banking, lenders will be able to paint a more accurate picture. This, in turn, should advance their products and services, positioning and offering the right terms for the right clients.

Benefits are seen both ways, for the consumer and also, for the service provider and product creator. By mutualizing benefits, it promises to be the next step in financial services and a natural evolution for the financial sector.

For lenders and financial sector companies there are lots of gains to be made and profits to be earned from better customer reach. By offering access to more products and/or services as well as making more accurate offers, based on more available data, financial companies can expect to improve revenue streams.

There is also the strive for decentralization and decreasing the dependency on huge data clusters. As a technologically open architecture, open banking promises to avoid needless consolidation in order to keep the concept running at an optimum pace.

And finally, we can also list interlinked financial ecosystems that provide an opportunity to share revenue.

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