Open Banking is a concept that refers to when a financial institution allows third parties, either financial applications or Fintech, to access the financial data of its customers and the functionalities of their bank accounts (with the consent or permission of those customers) to offer personalized financial services.
Difficulties and resistance from some users
Many people have grown up with the idea that banking should have a “secure platform,” and therefore, the financial data of its users should be guarded with the same level of rigor. This idea has created difficulties for open banking to “gain ground” in the financial world. However, some experts have observed that the lack of trust in open banking is due more to the lack of knowledge by users than not wanting to use it. A clear example is that five years after the launch of open banking in the UK, the FCA (Financial Conduct Authority) reports that only seven million people are active users of open banking.
Differences with traditional banking
With traditional banking, only the customer and his respective bank have access to financial data, while open banking allows the sharing of financial data with other financial service providers, which gives customers access to other more innovative and personalized financial services; within this group of financial service providers (external to traditional banking) are Fintech companies, financial apps, merchants, and some digital platforms.
In the words of Chris M. Skinner, open banking is about turning data values into financial values; this means that as people spend and save money, the data about those financial transactions becomes “richer.” Open banking aids the understanding of how money influences users’ lives, thus creating “smart” money.
Multiple financial service providers
The main characteristic of open banking is that it offers its users a wide range of new financial services, which are created by multiple providers through applications, APIs, and various digital platforms, facilitating access to credit and money management for users with a fluid and efficient interface and interaction.
Financial data in exchange for better services
Open banking requests its user’s data in exchange for providing better service because, through technology, the necessary information is collected, thus enabling the enriching of the data and obtaining a higher knowledge of customers’ financial behavior through automatic learning, which translates into a faster and simpler way of providing customers with offers, credit, and other more personalized financial services.
Financial inclusion
Financial inclusion is another factor that characterizes open banking since by having multiple financial service providers and having the capacity to exchange its clients’ financial data (with a wide variety of providers), open banking can provide more people with access to digital financial tools, which translates into the possibility of offering credit loans and other financial services to people or company that previously did not have access to such services or benefits; this allows for greater financial inclusion, which improves the quality of life of the general population.
Security
Security is an essential factor when it comes to financial services, especially when it comes to customers’ financial data. On this point, open banking is distinguished by seeking a high level of security, which has been evolving as technology advances, and, above all, by following the guidelines set by different regulatory bodies, which allows the existence of several procedures that protect users and their financial data against possible losses and fraud.
Importantly, in open banking, users have control over access to their financial data and can choose which aspects of that data they wish to share. Users can select with whom to share their data and when to stop sharing it.
However, as mentioned earlier, one of the main obstacles to open banking is the feeling that some people have of a “lack of security and privacy” about their personal information, a problem often associated with its very name (open banking). Because of this, Chris M. Skinner mentions that it would be best to call open banking “smart banking” or “smart money” so that new users can accept it.
What do you think about this topic? Would you like to learn more about open banking?
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