Traditionally, people deposit their money in bank accounts and pay using checking accounts.
Recent advancements in technology and information sharing are bound to change how your bank handles your financial information. One concept that is becoming increasingly prevalent in the financial industry is open banking.
What is open banking?
The simplest definition for open banking is the sharing of financial information through electronic channels. What this means is that your bank may share your financial data with third-parties through a secure Open Banking API. These APIs are also responsible for helping third parties develop applications and services that facilitate efficient and convenient transactions. The primary goal of open banking is to give customers a better experience when dealing with their financial information online.
Benefits of open banking for consumers
Efforts to move towards open banking are significant for banks, regulatory bodies, and other companies involved in the process. Apart from more options to manage your money, make payments, and apply for loans, consumers can look forward to the following benefits of open banking:
- Banks are pressured to improve. Although open banking allows financial institutions to share information with third-parties, banks may feel the need to improve their services so that there are no other entities permitted to control and receive messages sent and received by consumers. Banks can do this by offering customers better tools and competitive rates.
- Convenient tools. Consumers can look forward to more PFM tools from third-parties. Developers will also find it easier because of open APIs which means that consumers can have a variety of applications that help with financial management. Through the use of artificial intelligence, these applications may eventually become capable of predicting your account activity and suggest tools that can assist with controlling your spending.
- Streamlined lending process. Applying and getting approved for a loan may become more comfortable because of open banking. Lenders can easily access pertinent data that is crucial in accepting or declining an application.
- Business loan application. Similarly, businesses can apply for a loan more conveniently because financial institutions are already using open banking to get access to customer financial information. Banks can review your bank account information or your credit rating within a matter of minutes and send you approval or denial soon after analysing the data.
- Convenient payment channels.New payment methods will become available for consumers with the help of open banking. Customers can use third-party channels to pay for transactions, which gives them flexibility in terms of their preferred payment methods.
There are many other benefits to open banking which makes it an exciting development in the financial services sector. To assure consumers, banks, third-parties, and API developers make use of robust measures of encrypting data to keep confidential information private and secure.
There are regulations in place which specify what type of information and how much financial information can be shared with a third party. In many ways, open banking has made many services extremely convenient, but there is always a certain level of concern from customers regarding who gets a hold of their information and what they do with it.
