It’s almost impossible to imagine what our world would be without banks. But great as they are, they are not without shortfalls. Tonnes of paperwork, hours of sitting waiting for the manager, bureaucracy, and the evident lack of technology innovation by banks can sometimes make you feel like you’re being held hostage by your bank. But there’s a solution.
Enter the world of open banking. It’s a simple but effective solution to most of the obstacles that come with banking. It’s a more innovative and easier-to-work-with platform. It allows you to venture into new financial horizons more quickly and efficiently. We thought it was time you knew about the benefits of open banking and how it can change your finances.
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What is Open Banking?
Open banking is a practice where banks share your data (with your permission, of course) with regulated third-party service providers like us. Some of the data shared include transaction data and consumer banking information. Banks and third-party apps rely on a secure application program interface (API) to share this information.
APIs have a high level of security that includes data encryption to safeguard your information and prevent access by unauthorised parties. Opening up the data that banks have traditionally kept in-house creates new opportunities for the banks, fintech companies like us and you! You get access to more innovative financial products, more accessible access, and better control of your finances.
The involved parties use the information provided by the banks and authorised by yourself in different ways:
- Fintech companies – Using the data provided, Fintech companies have the information and tools they need to create innovative financial products and services that enhance your banking experience.
- Merchants – Merchants use the solutions created and provided by licensed financial providers to improve payment flows and fine-tune their financial tools to deliver the best experience.
- Consumers – Through open banking, consumers like yourself or your business can try new technology and have unrestricted access to their accounts. You also have more spending, investing, and borrowing opportunities for your money.
Remember, some banks have their own apps, which some consumers might consider as open banking. But they’re not. You can understand more about open banking by familiarising yourself with how this type of banking works.
How Does Open Banking Work?
Application Programming Interfaces, or APIs, are the heart and soul of open banking. They facilitate data sharing between fintech and banks. Understanding how APIs work makes it easier to understand open banking and how it functions.
What are APIs in Open Banking?
APIs are the platform that banks use to share information with third-party service providers. They are a way for software from the banks and other software to exchange information which is why they are so crucial to the success of open banking. For open banking, banks give their APIs to authorised financial providers. The APIs contain vital information like the account holder’s name, account type, transaction history and currency, among others.
European PSD2 legislation, which also governs the UK through FCA, requires all banks to provide qualified third parties with automated access to customer financial information. However, third parties can only access the information if the customer explicitly consents to share the data.
Customers can consent through an online form or by agreeing to terms and conditions. After you consent, third parties can access the relevant information through the API to develop advanced financial solutions better suited to your financial needs.
The easiest way to understand open banking is to know that it has three layers; the banks, the APIs and the fintechs.
Through the information banks provide, fintechs like us continue to transform banking. We make it easier, faster, and more secure for your transactions. With open banking, we also give you more opportunities and tools to manage your finances.
Benefits of Open Banking
Open banking benefits everyone that uses it, from the banks, APIs, Fintechs and most importantly, the customer. Because the customer is king, and all of these wouldn’t be possible without you, let’s focus on how open banking can benefit you.
Increased number of tailored products
Everyone with a cash flow needs banks. But only some have the exact needs, and some are more unique than others. Open banking gives you better chances of getting more personalised product and service options. With more data sources, fintech can tailor your banking experience and match the product to your needs. You also get a friendlier, faster, and more straightforward experience.
Faster access to credit and financing
The diversity of financial solutions isn’t limited to how you can access your money and complete transactions. It also extends to the variety of credit services you can apply to. Through open banking, credit companies can provide credit offers faster, helping you get the money you need when you need it. Sometimes, you don’t need to leave your seat to apply for a loan. You can deposit the loan in your account in record time without leaving that seat.
The diversity of credit options consumers can access has also expanded thanks to open banking. Besides traditional credit models, you can also get other credit facilities like buy now, pay later services.
Increased security
Theoretically, making your information more accessible to more parties increases risk. That would be true, but data security has come a long way, and open banking has some of the best security features. It’s as secure as your online bank.
Besides the existing security technologies that banks use, like two-step authorisation, the APIs used in open banking provide an extra barrier through data encryption. APIs create a secure channel for banks and fintech companies to share and transfer information.
100% online banking
You get the entire digital experience as you rightfully should. In addition, open banking can save you most trips that require you to visit the bank physically.
Access your money anytime, anywhere
Banks don’t operate 24/7, and that poses some accessibility challenges. For example, if you want to see the bank manager or a teller, you must make it to the bank within working hours. Factor in your working hours, living situation or travelling, and regular visits to the bank becomes impossible.
Open banking provides a simple and effective solution to your problem. It gives you unlimited access to your account and finances 24/7. It’s a convenience at its best!
Speed and automation
A simple transaction took hours, maybe days, just a few years ago to verify and complete. However, with financial data and transactions being shared across multiple platforms, economic processes are now faster.
Automatic access to detailed financial history to loan, mortgage and credit officers speeds up application and approval processes and eliminates the paperwork, which most people hate.
Traditional banking meets modern solutions
Open banking is not a rival or a competitor to traditional banking. Instead, it allows you to connect to the solid infrastructure banks have developed over the years.
Traditional banking and open banking give you the best of both worlds. You have the infrastructure of traditional banking and the technology of open banks.
The customer is king
You, the customer, are at the core of open banking. Everything about open banking is customer-centric. From the fonts to the layout to the user interface, accessibility, and speed, everything about open banking is designed to give the customer the best possible experience.
The competition within open banking means collaboration and development will continue, and you will stand to benefit.
Open banking is good for the banking sector and the customers. But just like banking, you can only enjoy the full benefits of open banking if you align yourself with the right open banking provider and we have a feeling you will feel right at home with us.
