Open Banking: a mystery unsolved

The banking industry has always been at the forefront of innovation and technology. A global economy cannot run without the scope and scale of sophisticated technical systems that support them.

One of the latest innovations that is going to transform our understanding of banking and the way it is going to operate in the new century is open banking.

What is open banking?

Open Banking is a new and emerging term that aims to encompass a wide-array of standards, features and technological innovation linked to how consumers can easily share information on their accounts across financial institutions. The benefits of adopting open banking can be numerous, wide-ranging and far-reaching.

Benefits for End Users

Multiple accounts in one place – One of the first benefits is the ability to allow the end-user access to all of their accounts in one platform, which would give them greater flexibility in managing their finances. They could analyze their spending behavior, create dashboards, set saving targets and many other features.

Financial Data – Another benefit is the provisioning of financial data for multiple end users to third-party providers(TTP), which can create new features, products and services that could benefit users. This would be extremely beneficial as it reduces the overall cost of going to various banks and trying to collate information from multiple sources, thereby increasing the time needed to create a new and interesting product.

Reduce transaction fees -Furthermore, open banking via its’ nature could even help facilitate a reduction in fees, which merchant and traders still pay to this day per transaction. In some cases these fees can reach as high as 6% per transaction but thanks to current advancements in technology along with the open banking initiative it is estimated that fees could do down to at or below 1%.

Greater transparency – Open banking could help with having more accurate information about potential customers and banks as well as other financial institutions could develop more reliable models for determining a customer’s risk profile and provide them with a better interest rate or even loan based on that information

Not only end users would benefit from open banking but so will banks and other financial institutions.

Banks

Loans - Loans could provide much easier and quicker as banks and other financial institutions would have greater access to a person’s spending patterns and data from other banks and can create a more reliable risk profile, thereby providing individuals with better interest rates and loans

Information – Gain a better understanding of where funds are coming from and where they are going, thereby decreasing the likelihood of breaking anti-money laundering regulations

Reduction in development costs – Instead of every bank developing their own API and trying to make it standard, having a pre-defined open banking standard would allow banks to reduce operational and development costs of multiple products

Partnerships – Creating long-term partnerships with TTP in building better products and services as well as developing newer products at scale

More competition – Open banking also allows smaller and newer banks to compete with the established players in the market given that the new technology is the main driver and delivering lowers costs and better customer care would be key features

What are the downsides of open banking?

In spite of all the numerous benefits open banking would bring there are also some key potential downsides.

Customer adoption– as of now customer adoption is still relatively low given that the technology is quite new

Only digital – there is some considerations that open banking could spell the end of branches, where customer can interact with a real person, when it comes to financial matters. This is a key consideration, especially for older customers, who would struggle with the challenges, which a digital interaction would bring. This is especially true in countries with a steady increase in the older population, especially in Europe.

Data Security – keeping customer data safe and secure is key and requires a great deal of attention and consideration. Nobody wants to risk losing valuable information to the hands of criminals and fraudsters as it is costly not only for the customers but also for the banks themselves

Control – Given how new the technology is there is still a long way to go before this has been tackled in a meaningful manner. Regulation is still trying to fully regulate and define what open banking should look like as it is constantly changing and evolving.

Conclusion

Open banking is a very new and interesting piece of technology that would revolutionize the way we think about banking. It is going to change how we describe our interactions with our financial provides and along the way provide us with new services that we wouldn’t have normally thought about. Hopefully, the technology will evolve even further and define what we consider banking in the no so far future.

Sources used(Not an exhaustive list)

Open banking: US is next: April 2018 – pwc-open-banking.pdfWhat is Open Banking? – Open BankingOpen Banking explained: how it works and is my data safe? – MSENordic API Gateway ships ‘fast-track’ Open Banking platformOpen Banking DefinitionWhat is Open Banking and PSD2? WIRED explains | WIRED UKWhat Is Open Banking and How Will It Affect You?What is Open Banking? | TSB BankOpen Banking – building innovative services together | API | SwedbankOpen banking services | EY – GlobalOpen Banking | AccentureOpen Banking is a reality for some commercial banking customers | Accenture Banking BlogOpen Banking Service | Barclays CorporateWhy Open Banking will be better for corporate treasurers | The Association of Corporate TreasurersThe cost of open banking: £81m and counting – Financial NewsHow Open Banking Could Cut UK’s £575m Card Network Fee Bill | The Fintech TimesThe value that open banking brings to each market playerThe common myths about open banking – UKTN (UK Tech News)How open banking could save branch banking | EY UKOpen Banking and sharing your information online – Money Advice ServiceIt’s Now Open Banking | Do You Know What Your Commercial Clients Want From It? – Accenture-Open-Banking-Businesses-Survey.pdfISO – ISO/IEC 27001 — Information security managementEverything you need to know about PSD2 | BBVAPayment services (PSD 2) – Directive (EU) 2015/2366 | European CommissionOpen Banking: pros and cons | Opportunities & ChallengesWhat are the pros and cons of open banking? | SoldoOpen banking: the pros, the cons, the basics — MoneyLens