Open Banking: Offering Businesses Technology Capabilities

The open banking industry is thriving. It can significantly alter how banks and their clients interact, offering both scale and considerably greater speed. Open banking connects banks, third parties, and technical providers – enabling them to simply and securely exchange data to their customers’ benefit. 

Regulators, predictably, have promoted this change to provide payment initiation services and share account data with authorized third parties. This marks a critical turning point in the digital revolution that is ongoing in the financial services industry.

The speed of technological innovation, along with the transition to mobile-first engagement, offers banks and fintech firms significant potential to enhance products and services.  

Potential Benefits from Open Banking 

Open banking offers a number of advantages to financial institutions. These advantages range from boosting growth potential for small firms to adding new revenue streams for large companies. Here are some immediate benefits:

·       Improving Customer Service

Open banking provides end users with a better customer experience and increases accessibility to various financial operations like making payments, transferring funds, or getting a mortgage. Fintech companies like Railsbank, TrueLayer, and Yapily can conveniently offer end-users access to every service in a single application: personal finance management, access to credit, and the ability to compare the different types of accounts offered.

·       Better Personalization

Small businesses can benefit from open banking. Financial institutions can access their financial data more easily, making operations for SMBs more seamless. As the article from earnix  notes, data analytics also enable banks to more effectively ‘slice and dice’ their customer base, improve customer profiling and group segmentation, and market specific products to clients, which allows banks to be more proactive. By analyzing data in real time, banks can offer personalized services such as pre-approved mortgages, personal loans, and other targeted products.

With advanced data analytics, a bank can predict a customer’s needs. By analyzing transaction data, a bank can quickly identify opportunities to offer a customer a specific product or type of account that would benefit them. 

·       Growth Acceleration

When banks and fintech companies work hand-in-hand, digital transformation goes smoothly and benefits every party involved. Access to data for non-financial companies through open banking creates significant potential for faster growth. Business owners don't have to focus on accounting, managing payroll, and auditing, but rather spend time on their employees, offer customers face-to-face service, focus on marketing efforts, and improve their products and services. Backed by open-banking initiatives, the sector is now at the forefront of a banking revolution that will finally give SMEs the level of service they deserve and unleash their true potential across the economy at large.

·       Reduced Costs of Financial Operations

Small businesses can lower their merchant service rates with open banking because card readers and POS terminals aren't required. Open banking offers simple and secure data exchange through an API, resulting in lower fraud rates and no acquirer, Mastercard, or Visa fees. 

·       Better Personalization Update Existing Revenue Streams

Open banking makes it possible to boost existing revenue streams and introduce new sources of revenue for financial institutions while broadening the client base. It may also establish revenue-sharing ecosystems in which users can pay for third party-developed services.

·       Technology foundation and capabilities necessary to adopt open banking

In today’s economy and market conditions, innovation is critical. Businesses face tremendous competition, skyrocketing client expectations, and intense cost pressures.These challenges can only be met by providing customers with fresh and unique products, services, and experiences. Open banking is the key to success. 

Consumers must see the value in providing their personal information. As open banking takes off, clients will benefit from distinct, customized solutions and stable, dependable systems capable of handling spikes in demand and offering quick service.

According to Temenos and the EIU’s analysis, 87 percent of countries have implemented Open APIs in some form. The foundations are in place, but open banking can only truly be open in the long-term by gaining consumer trust.

Many banks' aging IT systems are unable to provide an adequate level of assurance. A high level of operational risk makes it impossible to offer new services seamlessly. With aging IT systems, banks cannot quickly develop and launch products or innovate and deliver bespoke, hyper-personalized experiences.

Open banking demands modern platforms and technologies. 

• Banks must adopt an end-to-end digital infrastructure for open banking to flourish.  Open APIs offer the only approach for banks to gain value through collaboration with third-party companies.
• Companies leverage data analytics, data management, and artificial intelligence to develop high-quality insights to provide more personalized services. In the EIU study, nearly one third (32%) of respondents ranked this as a critical priority.
• Fintechs need to directly invest in their internal infrastructure, so the tools, policies, and procedures are in place, and security and compliance requirements are met.   
• Scalability: cloud and microservices architectures support elastic scalability of a solution and allow quick response to changes in demand or usage. 
• Cyber security (strong customer authorization, access control) - bank platforms must meet the strictest security requirements. Machine learning systems can also be used to analyze payment transactions and detect suspicious activity.

In addition, it will be necessary to align processes across departments to ensure success: Sales, Deposit, Treasury, DevOps, Information Security, Customer Experience, Senior Leadership Teams, Business Transformation, and Marketing and Customer Service.

Conclusion

A single API makes it quick and straightforward for customers to pay for their purchases via bank transfers. This reduces friction for customers, merchants, and service providers. It also poses a real challenge to card dominance and benefits all parties involved. Working with experts and forging partnerships are key components of success.

About the author: 

Anna leads strategic sales, client engagement initiatives, and client communications for DataArt’s UK team, establishing trust between clients and nearshore delivery teams. With over fifteen years’ experience across product and service development, marketing, and international sales, she facilitates the successful delivery of projects.

She joined DataArt in 2008 as a pre-sales manager, moving to the marketing side of the business in 2009 to work on marketing campaigns, event management, and market research. She relocated to London in 2014 to join the expanding New Business Development team. Prior to joining DataArt, she was a project manager for Siemens IT Solutions and Services, as well as a senior helpdesk analyst working with German, American, and Canadian medical engineers.  

Anna holds a master’s degree in linguistics from Voronezh State Pedagogical University.