Use Cases in Open Banking

Open Banking is finally coming of age. More and more applications are available that ride the Open Banking rails bringing innovation and efficiency to financial services, businesses, and consumers. In this article, I will look at some industry sectors that are using Open Banking today. 

According to the OBIE a Dec 20201 for the UK there were:

• 6 million Open Banking (June 2022) users up from 2.8 million in Dec 2020, 
• Cumulatively over 26.6m open banking payments had been made an increase of more than 500% in 12 months. 
• 337 Regulated Providers    
• 245 Third Party Providers    
• 92 Account Providers   
• 124 regulated entities with at least one proposition live with customers    

So it seems the pace to take up Open Banking is accelerating in the UK. Europe too is waking up to the benefits of Open Banking - Open banking provider Yapily scored open banking adoption levels — based on 2021 data — on a “league table,”.   
Ireland and Germany are strong runners-up behind the UK – the other countries have work to do. In the rest of the world Canada, Australia and Brazil are building legal frameworks and ecosystems.  The picture in the rest of the world is still patchy...

With this in mind, I am often asked ‘What can we do with Open Banking’  or ‘What is Open Banking?’.  I was always taught that if you can’t explain something in a couple of sentences then you have failed. So I always try and give a simple answer so that the layperson can understand a couple of simple use cases – around account aggregation and payments.  Most people ‘get it’ at that point and can relate it to their own circumstances.

I thought it would be useful to put together some notes about different the different use cases of Open Banking out there today.  As the technology and understanding of Open Banking evolve, so do the use cases.  Today, there are many use cases available in many fields. The applications are continuously growing as are the applications that are available.

Typical use case(s)

Accounting: Most modern accounting packages and systems offer Open Banking integration with your bank(s) automating of large portions of manual transactional bookkeeping work with data flowing seamlessly from banks into accounting software – freeing up significant amounts of time as businesses drive to increase efficiency and productivity. 

Loans: With Open Banking loan companies are able to better assess an applicant’s creditworthiness and affordability. This means a move away from the manual collection of documents and uploading of bank statements to a faster, more secure application process.

Business Payments: Open Banking capabilities create a streamlined experience for SMEs by accelerating notoriously slow and inefficient B2B payments.

Buy Now Pay Later: In this use case the BNPL company uses Open Banking for income and expense verification before extending credit to their users.

Commercial Credit: Using Open Banking, lenders can quickly look directly at the business’ cash flows to determine creditworthiness and the amount of credit to extend. Thereby reducing the amount of time it takes to complete the entire process.

Open Banking enables the inclusion of rent payments and other recurring bills so that better credit can be accessible to more people,

Credit Scores: Open Banking enables super apps to extract and aggregate all of the customer's information in one place, including their investment portfolio.

Mortgages:Open Banking enables lenders to have direct access to the applicant's history to confirm whether they have sufficient creditworthiness to undertake the mortgage obligations (payments).

Payments: Open Banking enables users to send payments to individuals and companies at lower cost and fast either in the country or across borders.  

Personal Finance Open Banking has enabled many personal finance applications that will analyse all your income and spending and enable you to manage your money better (or do it for you!).

Wealth Management: Digital wealth managers can benefit by using Open Banking protocols to gain a clearer picture of the client before recommending the appropriate investment based on the client's ability and appetite to assume risks. They are also able to use the Open Banking rails to move money between the client account and the bank at a lower cost. 

Within each functional area, there are many solutions each using Open Banking in it’s own way and providing its own set of unique benefits to the customer/ business. As Open Banking matures, more functional areas are opening up as the number of suppliers/ applications within each area. Watch this space.