What is Open Banking?
Open banking is a concept in financial services based on several principles: the use of open APIs allowing third party developers to build applications and services around financial institutions, increased financial transparency options for account holders, and the use of open source technology to achieve these principles.
Using APIs means that banking data will be available in real-time, providing consumers with better ways to conduct transactions, save, and invest their money. Consumers may also have access to better loan terms since lenders will be able to look at historical transactional data to determine a borrower’s risk level. Open Banking also aims to give consumers better and more personalized information for making sound financial decisions.
Around the world there are pressures, both regulatory and customer-led, that are opening up the financial services market to new entrants and disrupting what and how customers buy. In Europe, the Revised Payment Services Directive (PSD2) is set to unleash a transformation in how financial services organizations view themselves and each other. In the United States, aggregators such as Mint.com have already dis-intermediated banks and now own the ‘last mile’ of the customer banking relationship, disrupting traditional players. Open Banking represents an innovative step for the financial services industry to not only become more competitive in terms of customer engagement, but also to fend off the various financial services startups that have emerged in the past several years.
Traditional banks know that in order to compete they must develop digital capabilities to avoid being disintermediated completely by new entrants with superior, more agile offerings. By helping their customers to manage their financial affairs, make better decisions, and save money, banks can drive deeper 'trusted adviser' relationships that ultimately will result in stickier customers as well as product up-sell and cross-sell. These organizations can take advantage of the opportunities that open banking presents and move from a transactional customer relationship to a more engaged, more valuable, and ultimately more profitable relationship.