Fintech

The Rise of Open Banking

“We need banking but we don’t need banks anymore.  Do you think someday we can open a bank account or ask for a loan without physically having to come to the bank?” – Bill Gates

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Banks all around the world are transforming, and this is because their customers want innovation and customer expectations are rising every day. Open Banking is a safe concept that can help banks reach their customers and service them anytime, anywhere and on any device.

What is Open Banking?

Open Banking is an emerging concept in financial world which is based on using open Application Programming Interface that allows third party developers to build applications around financial institutions, increase financial transparency and use open source technology to achieve this.

“Think of your business as a platform for innovation with the outside world.” says Jim Kresge, Head of Digital Commerce Engineering at Capital One.

Transforming the banking experience

Many startups have realized the potential that lies in Open Banking and are using it to start and grow their businesses successfully by reaching out to customers who want innovation and presenting them with the perfect solution. Banks are becoming aware that they need to keep up with the digital transformation and some of them are accepting the Open Banking concept as a way to do that.

Studies show that traditional banks could lose up to 40% of their revenue if they do not transform, while payment services providers can reach up to 30% growth with the right approach.

With Open Banking and sharing their APIs, banks can reach their clients and address their financial and non financial needs. By allowing third party developers to use their APIs to create new applications banks are transforming the customer experience.

APIs have been around for a while, they are not a new concept but have always been used for internal purposes. Open Banking invites banks all over the world to share their APIs and connect with other services in order to give their customers what they have been looking for.

Banks have realized that innovation lies in technology and they are turning to companies that have nothing to do with banking in order to improve their customer experience. Two examples include partnering with travel apps to offer their customers simple payment methods while they are traveling, or marketing loans to people looking to buy a car through automotive applications. The possibilities are endless. With cross industry connections banks are on their way to reach new customers worldwide and increase their revenue dramatically.

While some banks have Open Banking as an option, others are obliged to do that. The European Commission has included a revision to the Directive on Payment Services (PSD 2) which requires banks to provide API access to third parties under the auspices of the European Banking Authority. The European Commission has stated that having the same rules all across Europe will result in better customer experience, faster payments, better protection of the customers and ultimately – better banking experience.

Banks need to think differently and be open to new opportunities to extend the banking experience to where their mobile customers are. By integrating themselves in customer’s everyday lives banks are making a huge transformation and obtaining valuable and satisfied customers.

Final result: Better customer experience

By using APIs banking data will be available in real-time and customers will have better ways to manage their transactions, invest and save money. Open Banking provides more personalized information about customers, so banks can offer better financial advices and help their clients.

Many customers are on board with this and are excited for change, but on the other hand some are still not even aware of Open Banking and have stated that they are not likely to use it once it becomes available. By sharing their information with the public customers are concerned about their safety and that third parties might be able to contact them. Even though this might seem intimidating, Open Banking is not a concept which is here to endanger the customer but rather to help by offering them accurate and reliable financial advice based on personal habits and needs, ensure more efficient transactions and increase protection.

Nevertheless, one is certain. Open Banking is here to transform the banking experience and provide customers with the best service by tailoring banking according to their personal information and habits.

Manigo Team, January 2017

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