BankTech

Open Banking Standard: When Sharing is Caring

MEDICI

Although the opinions over the necessity to ask customers what they want may differ, the idea of building a solution with the customer in mind stands firmly grounded in the business community. The banking industry has especially felt the importance of customer experience when agile financial technology startups appeared to doubt the way financial services have been provided for quite a while. However, the time of neglect has passed, and in 2016, beautiful friendships are being formed, bringing a new concept of open banking into life.

At the beginning of this year, a range of international financial institutions among which are Barclays, Santander, RBS and others, collaborated in the exploration of the idea of the open banking standard in a paper, emphasizing the importance of building services that are targeted to meet the needs of customers, suppliers and other innovators in finance.

Open banking comes with enabled access to data for all relevant participants of the market. While the access to one’s own banking data will enable consumers to make better choices of financial products and ensure the best available terms for the relatively young startup community, it will enable the opportunity to build better products and services.

But most importantly for financial institutions, opening banking data will allow banks to “make their interactions with customers smoother and simpler will help them to find efficiencies, improve customer service and deepen their customer base.”

There are more real-life benefits that come with the idea and are believed by a range of financial institutions to significantly enhance the quality of products and services provided.

Customers could compare and save on current accounts

There is a vast range of platforms offering card comparisons, bank account comparisons, and comparison of any other kind of banking product or service. However, those platforms often lack a personalized approach as they do not have access to a user’s financial data that would provide insights on hallmarks of one’s financial behavior and needs.

“If they [customers] could give a price comparison service explicit and limited permission to access their bank account data across an open API, it could suggest the best options for them.”

Lenders could offer borrowers better terms for loans

Underwriting processes have gone a long way since the inception of alternative lending. However, alternative lenders often do not have a chance to access the data of same depth and quality that is held by account providers in order to assess their risks and tailor the offering. As a result, the customer may be presented with unattractive terms.

As financial institutions behind the open banking standard suggest, “If customers could securely share their transaction data with third parties through an open API, potential credit providers could use it to better target their loans.”

Small businesses could save time on their online accounting

A wide range of companies nowadays rely on cloud services for bookkeeping, but among small businesses manual input of transactional data is still prevailing.

“An API from their current account provider would make it easier to reconcile payments – all a business owner would need to do is log into their accounting platform, select relevant bank accounts and give their permission for the data to be shared.”

Fraud detectors could monitor multiple accounts

In online banking alone, the value of fraudulent transactions is expected to reach $25.6 billion by 2020, up from $10.7 billion in 2015. Adding ATM fraud and all other types of cyberthreats to consumer and business finances and data, it has become especially important to be able to track and prevent suspicious activities. Financial institutions carry the responsibility to notify their clients about fraudulent activities in a timely manner. And the open banking standard can be a major force in neglecting the damaging impact of cyberattacks and financial fraud.

“With securely shared transaction data, third party fraud detectors could offer customers better monitoring and notification services. With sophisticated tools, they could aggregate data across multiple accounts or products to spot patterns that a single product provider wouldn’t see.”

Fortunately, there has been a significant move forward in terms of open APIs and we have been observing an increasing number of companies, both financial institutions and tech-powered newcomers, opening amazing APIs for the business community to leverage cost-effective ways for building better products and services.

Open Banking Standard: When Sharing is Caring

Image Source: The Most Important Thing in FinTech: Advent of APIs and Banking APIs Are Real Too

MEDICI Team

MEDICI

MEDICI Team is a group of content writers, bloggers, journalists, researchers, and editors from the MEDICI team who collaborate to create FinTech insights.

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