Among the many most recently recognized brilliant technology trends for the year 2019 that the banking industry has adopted is Open Banking. Does it ring a bell? No? Well, perhaps if you are hearing this term for the first time, and have less idea about what it means, then it is important for you to read this blog as it covers all the basic concepts about open banking every individual who is engaged with banks should know. Let us take you through a guided tour to make you aware of what open banking is and how it affects or helps in the lives of every individual bank customer.
Open banking or commonly known as ‘Open bank data’ is a systematic banking practice which gives the third party financial service providers open access (permission) to sensitive banking data such as the consumer banking data, transaction and other financial data from both banks and non-banking financial institutions (NBFCs) by using Application Programming Interface (API).
An Application Programming Interface is a comprehensive set of programming codes that checks the data, parses responses and sends and receives instructions for information between one software platform and another.
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The whole objective of introducing the concept of open banking is that it will provide for an unfastened network of bank accounts and cross-sharing of data across different institutions for the consumer use as well as for financial institutions and third-party financial service providers. As fast as the clock ticks, the open banking system is continuously becoming “a major source of innovation” which is all set to reshape the banking industry completely!
But before we move ahead, let us get enlightened as to who are the third-party financial services providers and then understanding what exactly they have to do with Open banking.
The third-party financial service providers or simply called as the third-party service providers include any consultant, agent or an advisor, who are usually independent contractors who render financial services to any individual or a corporate company requiring those services and are a subsidiary and not an affiliate (in connection) to any Bank or NBFC and are typically tech start-ups and online financial vendors.
Once the banks have adopted the open banking system, they allow for easy access and dominance of the customer’s personal and financial data the third-party service providers. This does not happen without the permission of the customers, just in case you are wondering. The customers are required to give their consent to such banks that support the use of open banking. This is mainly through a ‘Terms of service’ contract in their online app.
After this is done, The Application Programming Interface of these Third-party service providers then uses this shared data (and also that of the customer’s financial counterparties – the other parties that the customer has engaged within their financial transactions).
To answer such questions, the uses and the reasons behind the third party Service providers using API to access the personal and financial information of the consumers is to:
As mentioned earlier, the era of open banking is here! And it already has paved its way to become a major source of innovation for the banking industry. The open banking system provides for a network process rather than centralization, hence the open banking system helps the financial services customers to share their financial data ‘securely’ to other financial institutions.
For example, if a customer wants to switch his/her checking account service from one bank to another bank’s checking out service, APIs help in facilitating this strenuous process into an easy task.
One of the major unmentioned advantages of open banking system is that the API process involved in this system can help in looking at consumer’s transactional data and history to identify which kind of financial services and products would be the best suited for them.
Furthermore, another advantage that the open banking happens to give the banking industry is that through the use of networked accounts open banking helps lenders and lending service providers by giving them a clearer picture of a customer’s financial situation, to decipher the best profitable loan tenures for them.
Open banking also helps small businesses by saving time through online accounting and helping in fraud detection companies and better monitoring customer accounts and identify their problems sooner and give a respectable solution.
The most influential promise that open banking is to the banking industry is that through open banking, established banks will be forced to compete with the smaller or the new banks which would result in a better technology with lower cost and in the betterment of their customer service!
The open banking technology is indeed a true source of innovation for the banking industry, and if you ask us, there is no better way to completely revolutionize the banking industry, thus changing it for the better, as seen in the ideals mentioned in the above section. Therefore, it is a very wonderful opportunity for the banks to take advantage of this technology to solidify their customer relationships and retaining their customers by helping them to better manage their finances instead of merely carrying out transactions.
BankQuality, through this, makes our readers aware that we simply exist just to make your banking an approachable, easier and convenient environment by taking your problems to the one who might have the solutions – your banks! If you have experienced open banking ever or any other financial service not being up to the mark, you can now write it to us on our website’s ‘Write a review’ section, which will be reviewed and worked upon by us. Click here to start reviewing TODAY!