Open banking data and innovation that follows
Banks are the institutions that know people’s most sensitive and private data such as how much they earn, spend, save or owe. This information includes anything related to funds starting with bill/mortgage payments and is not limited to how many cups of coffee per day a person has. In the past, all this information remained completely private and banks held it under their wings without ever wanting to share it while not knowing how to use it to their advantage. However, open banking data brought light to consumer and Third Party Providers (TPPs).
Open banking data means that now this secret data can be accessed by TPPs who then can use it to customers and their advantage. Open banking data can be simplified and referred to as just open banking. This financial innovation has unlocked an enormous financial industry’s potential and continues to stir the financial market and its services.
The landscape of the banking industry has already changed significantly since the emergence of open banking data. This was caused by the combination of regulations and market forces that encouraged the expanding competition within the market. The new players that came to the market offered innovative products and services that increased money management flexibility for individuals and businesses. With the use of TPPs and open banking, users can access their financial data in one place and manage their funds effectively without the need to log in to all the separate banking accounts.
With continuous innovation, open banking data can reshape the whole ecosystem of the financial industry. It will touch bank accounts, the use of credit cards, transaction monitoring, loans and any other aspect of the industry.
Open banking definition
The definition of open banking data is simple – it is a process in the banking institutions that opens data access to TPPs. It allows TPPs to gather it, assess and share it with the concerned parties. It is a perfectly safe and secure way to facilitate the effectiveness of financial services to consumers with their consent. Having the requirement to gain consent from a consumer before any of their data can be accessed is key. It ensures the safety of consumer privacy and funds while improving the quality of financial services and products.
Open data access encourages competition within the banking industry and allows new companies to enter without so many barriers. Consequently, the financial market has experienced the explosion of innovative solutions that improve individual and corporate users’ finance management experience.
Open banking data affects all the involved parties – financial service providers, businesses and consumers. But what exactly does it do to each? Financial service providers gain opportunities to innovate freely and create additional services for their customers. Which can only lead to greater revenue and faster growth rates. To businesses, open banking means less manual labour as innovation by financial service providers tends to automate the processes. Therefore, payment handling becomes easier and less stressful which leads to more business opportunities, reduced costs and happier employees. To consumers, open banking means clearer and wider provider choices. Also, more efficient financial management, faster loan applications, easier borrowing processes.
Let’s take a look at the three instances of open banking applications:
- Online identification. There are identity networks that unite vendors with banking by confirming user’s identification. Banks on their own have processes that identify each user and confirm that the information is valid to avoid any fraudulent activity. Therefore, Third Party Service Providers (TPSPs) try to follow banks’ security infrastructures example and separate the financial information from the Know Your Customer (KYC) data.
- Finance management. The appearance of new services and apps enables consumers to aggregate their finances to one dashboard and reduces the time spent logging into separate banking institutions.
- Product matching. Open banking data allows users to find the best quality vs price service on the market. There are plenty of new apps offering various services that can be tailored to each customer. Therefore, it has become simpler to find the best loan conditions, lowest interest rates and any other comparable financial service.
Open banking solves financial market issues
Open banking was introduced to the banking market because there was stagnation with its development. Legacy banks’ monopoly had taken over the industry and it was extremely difficult to enter for new banks or financial service providers. The main purpose of open banking was to break the monopoly and spark competition together with enhancing customer experience.
Before open banking new financial services had poor trust due to no association with their name. Customers were afraid to open accounts or start a business with these banking institutions due to the proposed lack of security. Because of that consumers and corporate customers were stuck with legacy banks that might not have the best interest of their customers. The outdated products and services needed a push from the outside to ignite the innovation. Open banking did exactly that.
Read more about open banking data: https://nordigen.com/en/open-banking/data/