Open Banking is a concept that was created with the aim to address several problems in the traditional banking industry by leveraging technology and data sharing. Some of the key problems that Open Banking aims to solve include:
Limited Financial Transparency
Traditionally, customers have had very limited access to their own financial data. Open Banking allows customers to have better visibility into their financial data by giving them access to their account information, transaction history and financial statements. This increased transparency helps customers to understand their financial situation more effectively and make informed financial decisions.
Poor Trust In Banks
Some customers have poor trust in banks – the 2020 Edelman Trust Barometer revealed that the banking sector was one of the least trusted sectors. Having new companies offering innovative and fresh products to help consumers gain control over their information can help to increase customer trust.
Lack Of Competition
Open Banking encourages competition among financial service providers by enabling customers to securely share their financial data with multiple third-party providers. This allows customers to compare and switch between different banks or financial services more easily, fostering a more competitive market.
Inefficient Banking Processes
Open Banking promoted the use of standardised application programming interfaces (APIs) that allow different financial institutions and third-party providers to securely and efficiently communicate and share data. This integration streamlines processes such as payments, account aggregating and authentication, making banking services more convenient and user-friendly.
Limited Access To Innovative Services
By opening up access to customer data, Open Banking facilitates the development of innovative financial services and products by third-party providers. This leads to a broader range of offerings, such as personalised financial management apps, budgeting tools and lending platforms. This increased competition in the marketplace means that Open Banking can better meet the diverse needs of customers.
Data Security And Privacy
Open Banking emphasises the secure and regulated sharing of customer data. It employs strong authentication protocols and data encryption to protect customer information and ensure privacy
Furthermore, customers have control over their data and can choose which providers they want to share it with, enhancing data security and privacy. Customers have peace of mind that the only people who have access to their financial information are those who they have given express permission to.
Open Banking has the potential to improve financial inclusion by making banking services more accessible to underserved populations. It enables the development of innovative, low-cost financial products and services tailored to specific customer segments, including those with limited access to traditional banking services. Open Banking has literally opened up the world of banking and allows those who previously did not have access to their data or specific financial services, more options and choice.
Overall, Open Banking aims to create a more customer-centric and competitive banking environment by leveraging technology, data sharing and collaboration among financial institutions and third-party providers. It empowers customers with great control over their financial data while fostering innovation and efficiency in the financial industry.