Fintech players are constantly disrupting the financial services ecosystem, pressuring banks to change their business operations and enhancing the overall experience of the customer.
Open banking is a disruptive extension to this, enabling banking institutes to collaborate with fintech platforms and adopt open API technology to stay ahead of their peers. The practice is no more a new concept.
With the COVID-19 pandemic impacting global business operations, open banking-based products have multiplied since 2020.
Benefits of open banking
Open banking helps in sharing the valuable and confidential data of the customers to third-party fintech firms safely and securely. It helps customers to keep track of their money and make online transactions through their banks on a real-time basis.
On the other hand, it helps seamless transactions and reduces processing costs for the merchants.
This open banking era is a great time to be a customer as it helps in maintaining complete transparency with the bank and enables them to execute real-time financial transactions to help invest and save money.
It has also created a need for the traditional financial ecosystem to become dynamic by constantly improving its services and offers.
The open banking APIs are also beneficial to banks as it enables them to track all the financial information of the customers, thereby helping them to create new products and services.
Banks can also see the historical transactions of the customers and analyse their credit scores and assess the level of borrower’s risk.
Bridging the gap between banks and technology
Open banking is helping in uplifting the financial services scenario as the intellectual use of API and machine learning systems analyses data, payments, or even looks for suspicious activities.
By opening up their APIs, banks can now look at creating new revenue streams by simply adopting a plug-n-play model. New services could be on the lines of – investing in the stock markets, checking your credit score real-time, linking your bank accounts with SIPs, insurance premiums, etc.
Creating new products and services and integrating them into the banking system could have taken days, if not months. But thanks to the open APIs, banks can take advantage of the detailed data analytics and create new revenue channels instantly.
Open banking platforms have technologically disrupted the fintech sector across the US, the UK, and the Asia-Pacific. Traditional banking institutions collaborate with new-age fintech platforms to standardise financial data exchange practices.
Moreover, COVID-19 has given a boost to the trend of digital banking/payments, cashless transactions, especially in a cash dominated country like India.
Even in the post-COVID era, open banking will stay, and banks and fintechs will come up with more innovations and ideas. They will address the security threats and privacy concerns responsibly.
Ideal for individuals and small businesses
The system is helping both individuals and small and medium businesses. Open banking requires end-to-end digital infrastructure, and hence, a few banks are still not in a position to provide tailored experiences to their customers.
Few modern banking platforms like open APIs, AI-based analytics, cloud computing, and extremely high security is required for smooth transactions. Digitalisation is happening slowly in the banks for a seamless experience to customers, banks, and third parties, but such big evolution will take little time to happen on a global scale.
Banks and fintech companies have started working together, but still, there is room for improvement in the open banking system like digital advisors, augmented reality, virtual reality components, etc. This will boost the trust factor and enhance the customer experience.
Conclusion
This is an ideal time for open banking to evolve, and it is surely one of the best revolutions for banks, fintech companies, and customers globally. The focus should ideally be on data security to build trust across all stakeholders of this ecosystem.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)
