Imagine being able to access financial services that meet your exact requirements without hassles or restrictions. That is the promise of open banking—giving you access to services from fintechs while securely sharing data with them. Strong authentication systems and encryption will protect the privacy and transparency of any third-party providers with which your data may be shared, guaranteeing both transparency and protection of privacy.
1. Access to My Data
Open banking enables customers to take advantage of detailed financial data to create tailored products and services for them, with seamless financial integrations reducing downtime and providing greater system visibility.
Before the advent of open banking, third-party providers (TSPs) accessed consumer financial data through “screen scraping.” This process required consumers to give their bank login and password credentials directly to a TSP, who then “scraped” account screens to extract information for analysis—this led to security risks as well as inaccurate results that made managing finances harder than necessary for customers.
2. Transparency
APIs enable unprecedented access to financial data, making transparency an essential issue. Consumers expect to know exactly which information is being shared and with whom, while financial institutions need to inform customers of both risks and benefits presented by this new environment.
One such financial service allows consumers to view all their recurring subscriptions in one location; 77% of customers report they would value such a feature in helping them make informed financial decisions. Security and privacy must always remain top priorities, so premium APIs offering higher levels of authentication and protection are available as a solution.
3. Flexibility
Financial institutions are turning to open banking as a strategy to remain visible and relevant in an ecosystem-dominated environment. Through revenue-sharing agreements with fintech partners, they enable smarter budgeting tools, lending apps, and investment platforms.
Third-party providers (TPPs) can access real-time account information of consumers and businesses using APIs and use it to provide various benefits that save both time and resources for both. TPPs provide value-added services such as account aggregation and simplify processes like credit risk evaluation. Furthermore, TPPs help businesses save costs by providing an automated method to make payments.
4. Personalized Services
Secure access to customer data is at the core of all personalized services, from account aggregation tools that aggregate customers’ financial accounts in one location for easier tracking of spending habits to more advanced services like payment initiation and marketplace lending.
Traditional banks, credit unions, and large corporates work closely with fintech companies that specialize in technology to offer an array of specialized services that improve financial wellness—budgeting apps, subscription management tools, and other offerings designed to strengthen finances are just a few examples of such offerings. Establishing these specialized services requires complex infrastructure that many small businesses and startups lack the resources to construct themselves. Open banking offers them a way around this challenge by connecting to financial infrastructure instead.
5. Convenience
Budgeting apps developed for open banking allow customers to keep track of all of their incomings and outgoings more accurately, set savings goals faster, and reach them more quickly. This can result in higher service quality and reduced costs for both financial institutions and consumers and can reduce mis-selling while improving customer satisfaction.
APIs enable businesses to gain access to rich banking data in an easy, secure digital process without handing over passwords or PINs—instead, users give permission for their data to be shared by selecting a checkbox similar to what users use when signing into Facebook or Uber, giving the bank instantaneous access to all its accounts without needing to reenter credentials again and again.
6. Security
Virtusa security solutions help open banking environments protect customer financial data against tampering, abuse, and unauthorized access. Institutions implementing open banking environments depend on strong security measures to prevent unauthorised third-party providers from accessing customer financial data while keeping it protected against tampering, abuse and unauthorized access in accordance with legal frameworks. – Virtusa solutions protect APIs against these threats to avoid costly fines while building customer trust with customers.
Open banking provides consumers with a more secure means of sharing their financial data with trusted third parties such as merchants and fintechs, making for better financial management by opening up access to new personalized financial products such as spend management solutions or budgeting apps.
7. Payments
Banks allow third-party fintech providers access to customers’ financial data via APIs (application programming interfaces). Consumers generally indicate consent for third-party providers to share data. Fintechs then utilize this information for various services they offer.
FinTech personal finance apps may grant users access to their banking data so that the app can provide tailored budgeting tools or investment recommendations, while fintech lenders can access real-time consumer data to assess creditworthiness more quickly and expedite loan approval processes. As with any emerging technology, taking an incremental approach to open banking is key to its successful implementation. Consider both benefits and risks before finding the optimal solution to meet your institution’s goals.
8. Loans
Banks provide secure APIs that enable their customers to link their accounts with third-party services like budgeting apps or investment tools, providing customized financial advice or loan recommendations—something traditional lenders may miss. Furthermore, new data access enables FinTech lenders to verify income, identify risk-reducing behaviors, or detect psychographic/behavioral creditworthiness indicators that they otherwise might miss.
Open banking holds enormous promise to expand financial inclusion, foster innovation, and fuel competition within the sector. Businesses that take advantage of this technology can streamline operations while increasing customer retention rates.
9. Innovation
Contrasting traditional banking services, which operate within closed systems, open banking allows third-party service providers access to customer data via secure APIs, giving financial services companies the power to create new offerings or strengthen existing ones.
Personal finance management apps like 22seven (now Vault22) and Plum use open banking technology to provide their users a real-time understanding of their spending patterns and inform informed financial decisions, while lending platforms like Upstart use this technology to go beyond credit scoring models to offer fairer loan terms and create equitable lending arrangements for users.
Open banking must overcome some hurdles to achieve its intended goals; these include customer privacy concerns, upgrading legacy systems for API integration, and offering incentives that encourage customer participation with third-party fintechs.
