Open banking is pretty common in the E.U. and parts of Asia-Pacific, but it has taken longer to spread in the U.S. Open bank could change how banks, companies, and people share and use financial information.
What Is Open Banking?
Banks and third-party service providers, like fintech apps, use open banking to share financial information safely. Before opening banking, big banks were in charge of their customer’s financial information. Now, customers can handle and access their financial data on multiple platforms. This makes the process easier and more personalized.
Open banking can also spur innovation by making it fair for companies and tech platforms to compete. It forces big banks to improve to compete with smaller and younger banks for business. This can be good for consumers, who often end up paying less for better technology and customer service at the same time.
Before You Undertake Open Banking, You Need To Know What Type Of Information You’ll Be Sharing:
- Type of account Name of the account
- Date of account opening
- Transactions, such as how much you paid and where
- Balance on account
- Payment details
What Is The Process Of Open Banking?
APIs are software tools that let two programs talk to each other. Open banking uses APIs. Even though there are risks to using open bank systems, APIs help keep your financial information safe when you share it.
Once a third-party service gets the information from your bank, it can use it to give you customized options. For example, apps like Mint and You Require a Budget (YNAB) combine your data utilizing open banking APIs, which you agree to when you agree to the terms and conditions.
Here’s How Open Banking Affects The Different Parts Of The Financial Services Industry.
Financial service companies: Open banking pushes banks and third-party service providers to develop new ideas, giving customers more options.
Businesses: Open bank data assists businesses in figuring out what their customers want so they can make their products and services fit those needs.
Consumers: Open bank offers consumers more control over their financial information and access to digital tools that help them handle their money better and in a way that is more tailored to their needs.
How To Join Open Banking
Open banking is still in its early stages in the U.S., but people may already be using it without knowing it. Popular financial apps like Robinhood and Chime® use open bank software.
And some of the best planning apps, like Mint and Personal Capital, use open banking info to help people order and handle their money in one place. Mint uses the information from your bank accounts to keep track of your spending and give you specific planning tips. These kinds of sites would not exist without open banking, or only standard banks would give them.
U.S. companies that want to use this technology are mostly on their own because there isn’t a legal system or government backing for it. A bank can make its APIs if it is interested in open banking. They could also talk to the companies that make the banking apps they already use. Many of the best software companies for banks offer open bank options, such as API websites.
There Are Many Good Things About Open Banks, But There Could Also Be Some Bad Things.
- Open bank gives fintech startups and other companies access to customer data, which helps the financial services industry grow and change. This means that customers will have more tools to help them handle their money.
- Making loans is now easier. When it’s easier for banks and fintech companies to share data, loan choices can be made more quickly. For example, a provider can ask for your transaction and payment information through open banking APIs.
- Consumers are becoming more interested than ever in digital tools that they can customize to help them keep track of their spending, stick to a budget, and reach their financial goals. With open banking, third-party apps can access your financial information and use it to give you advice that fits your needs.
- Not enough rules. The U.S. has been slow to accept open banking standards, but the Customer Financial Protection Bureau (CFPB) will shortly establish rules for sharing customer data.
- Worries about safety. There are risks when you share your banking information online. But the security of open bank is important, and there are controls in place that we will discuss in the next part.
Is Open Banking Safe?
You may worry about the security hazards associated with sharing financial information throughout platforms, which is understandable. But one of the most important security features of open banking is that you won’t give third-party service providers your banking information. Instead, you’ll check in with your bank directly. Also, banking institutions cannot disclose your information to others without your permission, which you can revoke at any time.
In the end, open bank lets banks and third-party service providers give their users a more personalized and efficient experience. When widely used in the U.S., it will give people more power over their money and allow them to make better financial choices.