Even as the financial world is witnessing new tech entering the space, the latest innovations are also coming up in the banking space. One such system is open banking. With this, consumers can manage their financial information and access it across different platforms — receiving a smoother, more personalised experience in the process.
What Is Open Banking?
Open banking is a banking practice that provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs). Open banking will allow the networking of accounts and data across institutions for use by consumers, financial institutions, and third-party service providers, according to Investopedia.
Open Banking Vs Conventional Banking
Ashwin Chawwla, founder and managing director of Escrowpay, said, “Before open banking became available, consumer financial data was controlled by big banks. Now, consumers can manage their financial information and access it across different platforms—receiving a smoother, more personalised experience in the process. And, by levelling the playing field for start-ups and tech platforms, open banking can stimulate innovation.”
He added that it pushes large banks to improve their offerings to compete for business with smaller and newer banks. This can benefit consumers, who often end up paying lower costs while enjoying improved technology and customer service.
“Open banking gives consumers and businesses a fast, transparent, and accessible way to track, spend, borrow, and invest their money. Open banking takes the friction out of transactions. Open banking allows you to access innovative digital banking and financial services through the web or any smart device, Chawwla said.
How Does Open Banking Work?
Consumers and businesses can authorise a digital app to access their financial data through application programming interfaces (APIs). These APIs allow a company’s software to “plug into” and access information from the software at another company in real-time. “It puts consumers and small businesses at the centre of where and how their financial data is used, ensuring they control it and that they benefit from it through more choice in the way they pay, manage their money, access credit and more,” Chawwla said.
‘Currency of Trust’ Is Foundation To Open Banking
Chawwla said open banking is focused on empowering consumers and businesses with better financial services and experiences, all of which start with trust. Trust is built on the value that open banking-powered services can deliver by building safe and secure connections. It is reinforced through transparent consent management practices that give consumers the power to authorise an app’s access to their financial data and rescind that access at any time.
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