What is Open Banking, and How Does it Enhance Customer Experience and Revenue
The powerful force of the digital era has made it almost impossible for businesses to ignore technological advances with the sole purpose of enhancing customer experience. The banking system is rigid, but it too, had to adapt to these significant strides in doing business today. Open Banking is just one of the leading models offering a better customer experience. These mechanisms work to meet all customer needs through third-party applications using various integrated systems. So, there is no need to go to the bank anymore. Moreover, customers aren't the only ones benefiting from Open Banking. It has numerous benefits for business owners, banks and entrepreneurs also.
What Is Open Banking?
Also known as "open bank data," Open Banking is a global movement to empower consumers with control over their financial data. This control gives consumers freedom to share their personal data with third-party companies that can then use that data to provide alternative financial services that make it easier for consumers to move, manage and control their money. This will in turn provide them with greater choice, control and personalized financial services.
Let's explain how it all works. Basically, Open Banking allows consumers to have access and control of their financial and banking data. They can then choose to share with third-party applications, while being in control of what is being shared, for how long, as well as having the power to revoke access to their data at any point in time. Although widely sharing important data might sound scary and unsafe, don't worry. Open Banking is no conspiracy created to get your data.
The ultimate goal is to improve your customer experience. Banks are rapidly creating infrastructure to help share your information with companies to use it for innovations. Again, only when you choose them to do so. This way, the customer picks the data they wish to share with the business. The latter then uses it to learn about their customers and be more helpful to their needs.
How Do Customers Benefit From Open Banking?
Basically, the whole concept behind Open Banking is that people should own their financial data instead of institutions that deal with their assets. Up until recently, banks had exclusive access to peoples' data. But, logically, that does not give you many options. However, you can use your data as you please with Open Banking. In fact, people often use it to get their hands on some new services that are personalized, convenient, secure, fast and, of course, digital.
Open Banking Enables Choosing From a Wide Range of Tailored Products
Suppose you're perfectly content with your bank but still wish it offered you a digital subscription management service. Thanks to Open Banking, you don't need to switch banks anymore. Instead, you use a third-party app to get all the features that you need. As a matter of fact, there are many more possibilities for customers, depending on your specific wants and needs. That means you can choose from various financial services, depending on the one offering the best customer experience. For example, you can use one for budgeting, one for subscription management, etc.
Open Banking Uses Your Data for a Friendlier Experience
Personalized and relevant products are probably one of the main benefits Open Banking offers.
How does it work?
Once you provide your financial info, banks and fintechs can then tailor their products and services to your specific needs. Therefore, giving access to your data gets you the services that match your consumption logic. Moreover, the whole experience becomes more straightforward, faster, and much more user-friendly.
Open Banking Lets You Access Different Services From One Place
All you need is just one click, and you can access various services from your smartphone. Whether it's getting your financial info or the best new offers available, it's all there — in a single application.
Open Banking Means Safe and Transparent Use of Data
According to Michelle Beyo, CEO and Founder of FINAVATOR, although there are ecosystem efforts to enable open banking, the benefits for consumers and businesses are exponential.
Once a framework is embedded to protect consumers through data rights, an incredible list of opportunities can be made available for budgeting, savings, customized products and secure data sharing between banks and fintechs.
The current system is putting consumer data at risk on a daily basis while Open Banking sets standards and puts in place secure APIs, allowing for services that are currently being enjoyed in other Open Banking markets to be made available in North America. The new API models can obtain enriched data and gather deeper insights into consumer habits. For that reason, countries that have an established Open Banking frameworks, such as the UK, Singapore, Australia, and Brazil, were able to be far more agile in their response in helping consumers and small businesses during the pandemic.
There are signs that Open Banking is moving forward in North America. With Biden’s Executive Order in July 2021 highlighting the need for greater market competition and better data sharing regulations, the US is joining the list of countries that have taken action in favor of an Open Banking framework. Specifically, a provision in the Executive Order encourages the Consumer Financial Protection Bureau to create regulations that allow Americans to access their banking data, as well as to transfer it to other banks and financial services providers with ease.
As for Canada, the Final Report by the Advisory Committee on Open Banking, released in August 2021, includes an implementation timeline and key details on the ideal framework that is expected to go live by January 2023. This has further been confirmed during the recent Canadian election, and reconfirmed last week in the Associate Minister of Finance's Mandate Letter by Prime Minister Justin Trudeau's inclusion of a commitment to launch a “made-in-Canada” model of Open Banking by early 2023.
The move towards Open Banking in North America will undoubtedly help enable innovative and low-cost financial tools necessary to secure consumers’ financial futures.
Open Banking Enables Faster Access to Credit and Financing
This is, hands down, one of the most fantastic benefits of Open Banking for consumers. Companies that offer loans can now provide them much faster than before. In other words, you get the cash you need at the exact moment you need it.
Additionally, Open Banking models also promote new products for consumers without a credit card or credit history, for that matter.
Some companies are even using peoples' fiscal information to help them buy a home safely but faster.
Open Banking Enables Improvement of Personal Finances
People can do so much to better their financial situation once they learn all its perks. One of those is undoubtedly using products that help optimize your finances.
There is a well-spring of apps that help manage budgets, track accounts, credit card usage, and the works — all in one place.
Open Banking Helps the Creation of New Financial Models
On-demand payroll is just one of the many possibilities that companies use to help their workers get their money as soon as possible. For gig workers, such as Uber drivers, this is a golden perk.
All in all, Open Banking is an innovative concept offering a wide range of user benefits. However, it all depends on the creativity and companies' willingness to get some new ground-breaking services out there.
These are undoubtedly some of the most significant benefits of Open Banking for consumers:
Increased control of financial data
A better way of saving, borrowing, and investing money
Improved personal finances and customer service
Reduced overdraft fees
How Does Open Banking Benefit Businesses?
Surely you know data is nothing to play with. In fact, it's actually a pretty big deal. Having access to it opens up many possibilities for entrepreneurs and businesses everywhere as data is the critical component fueling innovation. Thanks to Open Banking, companies can now offer new products and services and improve existing ones.
If they do it smartly, they can enable a personalized, totally unique user experience and better the customer journey. Moreover, financial data is often used to solve customers' problems and bring extra value to both consumers and your business.
For example, companies can use Open Banking to:
Significantly innovate on their products and services.
Save time on manual tasks by using automation.
Make onboarding for financial services more straightforward than ever before.
Enhance credit scoring and verify incomes when risk assessing.
Provide personalized financial coaching.
Make it easier to transfer funds or settle invoices.
Of course, there are many more possibilities to explore, but they all have one thing in common — improving customer experience.
The Key Takeaways
Open Banking is undoubtedly one of the most excellent gifts of the digital age. This user-friendly movement allows third-party applications to access and control peoples' banking information.
If customers choose to allow it, this process can significantly affect their overall experience. The benefits are plenty, but mainly they boil down to these:
Cost reduction
Personalization of products and services
Improved decision-making process
Convenience
Complete control
Trust
That means no giving your data away. It just means more power for customers managing their funds. Through APIs, the information is streamlined between financial institutions. In addition, countries are developing strict protocols regarding Open Banking to make things totally safe, such as substantial authentication requirements. So fintech companies are held to high standards for leveraging sensitive financial data. That being said, Open Banking does not come without certain risks.
To ensure the safety and security of consumer data, a country's Open Banking ecosystem is protected through data right legislation as well as agreed upon rules and standards that set up the accreditation process for third-party players.
The Bottom Line
Open Banking is a game-changer that is indeed altering the competitive landscape of fintech services offering consumers a wide range of benefits.
Written by: Michelle Winsor and Guest Writer: Mo Banjoko, Senior Manager, Business Consulting, EPAM Systems, OFNC Member
Republished with permission of the Open Finance Network of Canada (OFNC), of which Accelera is a member.