We know online banking or mobile banking. And you may think open banking is just another name to log in to your bank account using the internet.
Well. It is quite different. Open Banking (OB) has emerged from the need to empower consumers to gain more control over their financial data and use it to unlock more competitive services.
Through Open Banking, you allow third-party providers to access your financial data from banks and non-bank financial institutions that you are a member of. How? Short answer, through the use of APIs. Sounds too technical? We will get to this in a bit.
Now from that perspective, we may define open banking as a system through which you make your data open to the world. This, in turn, opens up a whole new world for data-hungry third parties to eagerly develop new apps and services based on your data.
For this reason, many regard open banking as the source of innovation that can reshape the future of the banking industry.
Open Banking Made Possible Through APIs
In order for third parties to use your data, they need access to it. And since your data is residing at your bank, your bank should provide that access.
They use secure modern APIs through which the bank exposes your data. The data that has always been under the control of your bank, is available to other parties.
Those parties can link up to your data and build innovative applications and services that in turn benefit you to a greater extent.
Now, your data is accessible through APIs, in real-time. This helps consumers with better ways to conduct transactions, save and invest their money.
A typical open banking app offers money and banking app management services. These services help you save on your bills (e.g. insurances, utility, etc.) by exploring alternatives, offering investment ideas, manage your bank accounts centrally by connecting them through their app, and help make better money decisions.
With this, you can see how open banking aims to give consumers better and more personalized information for making sound financial decisions.
What Does It Mean For Traditional Banking?
Now that you know what open banking is, you may wonder how this impacts traditional banks. Let’s put it straight, they face a lot of competition. And to compete they must come up with innovative digital capabilities. Otherwise, new entrants with new innovative offerings will threaten their existence. In fact, they do.
In order to avoid that, you see more and more banks are turning to their customers and try to engage with them. They invest a lot in digital transformation programs to offer the best digital experiences. Similar to the example we gave, they offer to help customers to manage their financial affairs, make better decisions and save money.
In order words, you see banks striving to build lasting relationships rather than a transactional relationship with their customers. For a bank, it is of no benefit to seeing open banking as a rival and compete. On the contrary, they take advantage of the opportunities that open banking presents. In this way, they stay ahead of the competition by building a more engaged, more valuable, and ultimately more profitable relationship.
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