What is open banking?
Let us start first by looking at what open banking is. Open Banking is a secure way to give service providers access to your financial information.
It is an innovation that allows third parties to build apps and services around financial institutions like banks and others. The main criteria of open banking is for customers to be able to pay for products and services entirely through an app or a website.
“The main criteria of open banking is for customers to be able to pay for products and services entirely through an app or a website.”
According to a 2016 Nielsen report, consumers spend an increasing amount of hours online every day, where the world, consumables and payment power is at their fingertips. From their range of devices, they are able to can find anything they need within seconds.
The payment process becomes an integrated experience, rather than an additional step to search for and complete.
In this new world, think of consumers purchasing not in terms of cards, but in terms of accounts. The question is no longer where cards may be accepted, but HOW they are accepted.
How open banking works
Here is how it would work in practice. If you were a customer looking for holiday insurance for example, Open Banking would let a price comparison site access your banking information, to allow it to tailor the products it suggests to your budget, while considering your typical spending patterns.
This kind of technology has many benefits to customers, such as:
- Allowing you to view all your bank accounts in one place
- Allow budgeting to be a simpler process, as you have a clearer view of how much money you have.
- The obvious benefit that payments can be made in literally seconds, all from one place, making everything more convenient.
Open banking benefits
Tasks such as invoicing from your phone in seconds, along with the ability to view multiple bank accounts in one place are two immediate benefits of open banking systems.
When open banking is combined with automated techs, such as BankSense treasury software, time-rich tasks, such as reconciliation also become more simplified.
How Open Banking is changing the face of financial institutes
According to Deltec Bank, “Open banking is a driving force of innovation in the banking industry. By relying on networks instead of centralization, open banking can help financial services customers to securely share their financial data with other financial institutions.”
For example, open banking APIs can facilitate the sometimes lengthy and laborious process of switching from using one bank's checking account service to another bank's.
The API can also look at consumers' transaction data to identify the best financial products and services for them, such as new savings account that would earn a higher interest rate than the current savings account or a different credit card with a lower interest rate.
Some main takeaways of open banking
- Open banking is the system of allowing access and control of consumer banking and financial accounts through third-party applications.
- Open banking raises the potential for promising gains consumers, as more of their data is shared more widely.
- Open banking has the potential to reshape the competitive landscape and consumer experience of the banking industry.
Industry leaders
Barclays is leading the way with the development of its open banking system. They were one of the first UK banks with an open banking app. This innovative app has enabled its customers to view account data from other retail banks without giving out names and passwords for these accounts.
To finish...
Consumers demand a greater ability to use their mobile and portable devices for more and more tasks, innovations like open banking are already here and it’s set to rapidly change how customers and businesses handle their finances and interact with banks and other financial authorities.
Disclaimer: The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.
About Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.
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Country: Bahamas
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