What Is Open Banking?
Wikipedia defines it as:
Open banking is a financial services term as part of financial technology that refers to: The use of open APIs that enable third-party developers to build applications and services around the financial institution. Greater financial transparency options for account holders ranging from open data to private data.
Following in lieu of the UK’s requirement on their largest banks to implement open banking measures just a few years ago, banks in the US formed their own initiative with the Financial Data Exchange which has completely revolutionized the banking industry as we know it. The best part is, we’re only at the beginning of this big change in how each individual stakeholder has full control over their own financial data.
More Competition & Choices
As more banks join the FDX, not only does the consumer benefit, but the bank also gains an increased retention with the sudden surge in available services. For example, a bank would be able to provide a specifically curtailed car loan to a consumer given their financial data across all or some of their various assets. The consumer on the other hand, can now shop for loans effectively, creating healthy competition for even small financial institutes.
The fintech industry benefits from providing high-quality services to a greater number of participants, who are no longer restricted to only large banks or affluent individuals. Small and medium-sized banks and institutions gain the most benefit in that the entry-level costs are relatively low if not completely free given that the product has transformed into being the data itself.
Which brings the question of security in mind. Much of why the FDX organization was formed was to have a common technical standard across the various membership banks and institutions. The requirement of transparency for third-parties is a key aspect, malicious parties can be held accountable.
Concepts of financial data expiration provide an extra grain of control for the consumer. However, this does not account for an individual’s behavior, personal security, or even educational knowledge in their role of having control over their own financial data. We need to be ready for some rapid adoption of these new services.
In a few more years our financial industry will be radically different as more organizations adopt open banking. As cashing checks have nearly vanished into obscurity, so too leading the same path are bank lobbies. Considering the circumstances of our times, it gives pause to a bank in questioning the need for a traditional brick and mortar building. Consumers have an increased demand for quality online or mobile banking experiences and the ability to have full control over their financial data. So open banking is paving the way for this inevitable future.
To take the first step towards open banking, you can learn more about the Financial Data Exchange and what they can do for your organization by visiting https://financialdataexchange.org/.
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