What Is Open Banking And Why It's Crucial For Fintech
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Banking has transformed by leaps and bounds in the past decade, with digital innovations changing the way the financial institutes operate. Among the many forms of digitized banking, an emerging form of banking called open banking is starting to take shape and banks are racing to build and deploy robust application program interfaces (APIs) for the same.
So what essentially is Open Banking and why are bankers so bullish on the method. Let’s have a look
What Is It?
Open Banking essentially refers to an emerging service model where an open source technology that allows anyone to create apps and websites for the financial services sector, allows customers to share access to their financial data with non-bank third parties, which can then use that data to provide the customer with a better banking experience. This data to be shared securely between banks and trusted third parties is done with the customer's consent and banks can use the Open Banking platform to offer plug-and-play financial products to third parties, such as retailers or fintech companies, thereby expanding their reach to new customers.
Why Is It Trending?
Given the rapid adoption of fintech products beyond banks, having accessible and reliable customer data at hand, allows these companies to design curated financial products that banks currently do not offer. While banks may enjoy greater consumer trust, fintech firms are slowly catching on as they connect with the modern consumer through innovative touch points.
The use of APIs will make banking data available in real-time for use in third-party applications and provide consumers with better ways to transact, save, lend and invest their money. Even when it comes to businesses being dependent on fintech platforms, equivalent products are being developed, like digitally linked payrolls, accounting software that can link to bank accounts to reduce unnecessary administration and more.
Adoption In India
The European Union and UK have been the pioneers in adoption of open banking models. Banks like HSBC have already started using the platform in markets like UK and other are catching on as well.
Regarding the adoption on Open Banking in India, Rishi Aurora, Managing Director and lead for Accenture’s financial services group in India said “Indian banks are already using newer technologies to understand customers affinity towards a product or service. However, success of a new service is still dependent on an organizations capability to understand the data and run targeted campaigns.”
He however, treads a cautionary note saying,“Customers trust the banks most with their data. Banks should therefore handle the data responsibly and at the same time, leverage it to offer a personalized customer experience.”