Open banking has demonstrated its potential to improve services, reduce fees and provide consumers with more options.
Open banking is one of the most significant developments occurring in the financial world. It originated in Europe, but countries in other parts of the world are now embracing it as well. Open banking uses emerging technologies to create more efficient and cost-effective financial services by sharing customer information with third-party providers (TPPs). The services that TPPs provide generally fall into the categories of account access and payment initiation services. For account holders, open banking can change the way they pay bills and make purchases.
TPPs are able to acquire account information from many financial institutions in an open banking environment through the use of application programming interfaces (APIs). For example, an application can use an API to access your checking account, track your spending habits, perform price comparisons and make suggestions as to what you can afford to purchase. Open banking isn’t legally mandated in the U.S. yet, but American banks are increasingly willing to share information with TPPs in order to improve their customers' experience and provide them with more services.
Open banking is dramatically changing the practices of financial-sector stakeholders such as banks, regulators and TPPs. Customers can also expect more options for managing their money, especially for borrowing money, because they will be able to directly access the services that TPPs offer rather than just those of their banks. Banks have an incentive to add these services in order to remain competitive in a rapidly changing financial marketplace.
Open banking has demonstrated its potential to improve services, reduce fees and provide consumers with more options. This trend is expected to continue as countries formalize open banking through legislation.