Well, banks have a wealth of information on their customers’ spending, saving, and borrowing habits, from domestic bills and loan payments to shopping and lifestyle preferences; these are valuable data that can be used by third parties like competitor banks and financial technology (fintech) firms to develop new products and services.
From consumers to businesses, everybody wins with open banking!
There is no denying that there have been a variety of successful use cases with regard to the usage of open banking to its full potential. Not only does open banking open doors for consumers to enjoy a more tailored and seamless customer experience, but the sharing of open financial data through API also impacts businesses to a greater extent.
Take the lending industry, for instance – for a long time, this industry has relied upon traditional practices where the public undergoes long, paper-full, and time-consuming loan application processes which generally involve a lot of steps and procedures. However, today, open banking has disrupted this environment by allowing for a more seamless customer experience to take place. Customers no longer need to bend over backward to justify their profiles with potential lenders. Through open banking functionalities, lenders can readily access necessary customer information such as credit profiles and bank statements directly to make way for faster approvals.
Likewise, from a business standpoint, the integration and influence of open banking bring the utmost convenience and productivity to the lending industry. What used to take months is today achievable within a few minutes; where lenders are able to make informed decisions on the sanctioning of loans by assessing their client’s risk tolerance, investment knowledge, and financial position with ease. This ultimately helps lenders to improve their decision-making, handle a higher volume of applications and reduce the rate of non-performing loans (NPLs) under their purview.
The prevalence of open banking around the globe
In a recent article, Mastercard said that the global open banking scene will continue to grow, as it has been widely adopted in places like the UK, the US, North America, and Europe. Notably, two common ingredients that have greatly contributed to the thriving of the open banking era were (i) the extensive growth of global digital economies and (ii) the strong support and endorsement of the respective local regulators to bring in more competitive financial products and services to the community.
In order to increase competition and encourage open banking in their countries, the UK, South Korea, Australia, the EU, and India have ordered large banks to let other companies access their customer accounts. It is worth highlighting that the UK remains one of the world’s most advanced open banking ecosystems, and a research report from TransUnion, around the time when the Open Banking legislation came to fruition back in 2018, revealed that eight out of 10 financial firms in the UK were already adopting, planning to adopt, or were interested in doing so.
In the US, both traditional banks and fintech companies have realized how important it is to work together instead of against each other. They use open banking to create new financial solutions for people and businesses. In other parts of Europe, laws, and regulations have helped promote open banking by making it easier for new ideas and better ways of doing things while giving consumers more security when making online payments. According to Open Banking Europe, there are currently around 1200 banks that are already acting as third-party providers (TPPs).
In Asia, the pandemic and its related disruptions have also helped accelerate the rise of open banking in the region’s financial sector. However, governments in Asia-Pacific have been comparatively slower than in other regions to enact open banking regulations. Although open banking is adopted at different rates in APAC, there are some progressive movers in this environment too.