The world of banking is changing dramatically – with one of the most significant advances in recent decades being Open Banking. But, what exactly is Open Banking, why is it now becoming one of the most popular ways to make payments and something businesses and consumers should consider using? Here, we discuss the pros and cons of Open Banking.
What is Open Banking?
Let’s start off with a quick introduction to Open Banking. Open Banking is when data is shared between banks and licensed third parties. Customers are now able to share their banking information with other parties and companies, and this new way of sharing information benefits both consumers and businesses.
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How does Open Banking work?
Open Banking lets you share certain financial information that you and your bank can see, such as transaction history and balance. However, since 2018, Open Banking rule changes have meant that the largest banks in the UK have to let you share your financial data with authorised providers. Doing so is a simple process that doesn’t involve loads of form-filling.
Third-party apps that automatically save money for you, or analyse your spending to help provide you with bespoke budgeting tips, are just some of the practical ways Open Banking can be used by consumers on a day-to-day basis.
Open Banking is also brilliant for online payments. Retailers and companies can now be granted permission to connect directly to your bank. This will avoid customers needing to fill out their card details as they can simply authorise the transaction online or via their mobile.
What are the pros of Open Banking?
Data security is vital, so it is understandable that consumers may believe their data is not safe if it is now available to third parties and companies. However, this is not the case – Open Banking actually has security at its core. Not only has consumer identity significantly been approved in recent years, but all the data is also encrypted and stored securely.
Better Customer Experience
One of the main goals of Open Banking is to improve financial services for consumers, and one way it achieves this is by creating a better customer experience. Less time-consuming form-filling means making payments and managing personal finances has never been easier.
This improved customer experience can also boost conversion rates for businesses. If the payment process is made a lot easier through Open Banking, more customers are likely to convert and successfully complete their payments.
The 2018 changes in Open Banking mean consumers can now get more services in one place as their information, previously only available to banks, is now kept in a central location for others to access if/ when is necessary.
Lower Fees For Businesses
Card transaction fees can be significant depending on the provider companies go for. However, account-to-account payments (A2A) reduce these transaction costs substantially.
Funds travel quickly with Open Banking, meaning you will receive the money instantly rather than taking a while to process. Not only is this great for a business’ cash flow, but it also reduces the risk of failed transactions which can be costly.
What are the cons of Open Banking?
There are always two sides to everything and Open Banking is no exception. Whilst there are many clear benefits to adopting open banking, there are also some potential downsides.
Lack Of Consumer Trust
Some people are not great at dealing with change, especially when it comes to technology. As Open Banking is still relatively new, it will take a while for some consumers and businesses to come around to the idea of it. There will inevitably be some trial and error before Open Banking is deemed the norm . The fact that In August 2022, there were 6.5 million successful Open Banking payments, shows increasing number of people are turning to this method of payment.
Whilst Open Banking is secure, it is understandable that some people will be skeptical, especially as it involves personal financial data. The key is to highlight the secure nature of this system, emphasising that their data is safe. It is however imperative that consumers know the importance of checking the authenticity of any Open Banking software they use before they start.
Banks Are Falling Behind
Not all banks are currently prepared for all the technological advances made by Fintech companies. In turn, their clients may not be able to currently use all the Open Banking features.
Open Banking is a completely new approach to traditional banking. However, the simplicity and ease of Open Banking will allow payments to become even more smooth and more secure is great news for businesses and consumers. Whilst there are some inevitable drawbacks to Open Banking, the opportunities Open Banking can provide consumers and businesses are undeniable.
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