Open banking has been gaining great importance and is being embraced across the globe. Within the past couple of years, it has also been gaining great momentum in our region, with Bahrain being the first to introduce Open Banking regulations and other jurisdictions in the wider area are following suit.
But before getting into how Open Banking can improve financial services, let’s start with understanding the basics and what Open Banking really means. Using a universal Application Programming Interface (API), Open Banking enables the sharing of financial data between financial institutions and approved third-party providers (TPPs) in a secure regulated manner to provide personalized products and services that are seamless and beneficial for the consumer.
Ultimately, Open Banking is about improving customer experiences within the financial services. While other sectors have evolved, financial services have yet to address that customer experience gap. The financial sector today is still a ‘one size fits all’ and offers all customers the same set of products and services.
To draw some comparisons, let’s take Netflix as an example and how the platform shows its users recommendations based on what type of shows they like watching and what could potentially interest them. With Open Banking, the same can be possible with financial services. Users can gain greater access to their financials, make secure and swift payments, manage multiple accounts such as deposit accounts, credit cards, and loans, and be able to do all that on one preferred platform of their choice.
The key asset that enables this is financial data, it is the ‘how’ behind the improvement of financial services. Financial data is one of the most, if not the most, underutilized kind of data. Financial data such as income levels, spending behavior and saving habits can be utilized to tailor propositions to meet the need of the customer.
From an industry viewpoint, Open Banking supports innovation through driving collaboration between banks and FinTechs. It empowers both incumbents and smaller tech companies to work together to build innovative solutions with faster to market delivery. Hence driving bank and fintech partnerships in the sector.
And while this is all exciting, as data’s importance and value is significantly rising, so is concerns about data privacy and security. So, how safe is Open Banking really? Contrary to existing misconceptions, Open Banking offers a more secure way for customers to access their all their financial data. With customer’s consenting first, Open Banking puts the power back in the hands of the user as they are the true owners of their data and are the ones who decide on who to give or revoke access to their data.
All in all, Open banking offers great opportunities for both financial institutions and fintechs that are looking to increase customer engagement on their platforms and end-users that are looking for better customer experiences.
