In the financial world, open banking has become an exciting new buzz phrase. After taking the European economy by storm, open banking has now arrived in the United States. New technologies are transforming the way the banking industry operates by creating more efficient and cheaper financial services. According to Forbes, open banking is somewhat of a revolution changing the banking industry. With open banking, third-party providers (TPPs) can now use personal banking information to help customers save money, borrow more easily, and pay efficiently. So what exactly is open banking and how can it impact your business? This new way of banking can change the way you do business, acquire customers, and process transactions. Keep reading to learn more.
What is open banking?
Open banking solutions create a collaborative environment between financial institutions and businesses. These solutions allow businesses to acquire aggregate data quickly from numerous financial firms. It is as simple as data sharing. An app developer could access checking accounts and offer services to help customers track spending and earning habits over time. Open Banking will also let a price comparison site access customers' banking information, so it can tailor the products it suggests to what the customer can afford and what they typically spend.
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In the past, banks closely guarded and secured all transaction and account data for their customers' privacy and security. Traditionally, account and transaction information was some of the most secure personal information. However, in the interest of customer service and business strategies, the advantages of opening data collection and sharing have recently been acknowledged by financial institutions and technology companies. This is providing seamless and quick access to information.
How does open banking work?
While not legally required in the United States like it is in the UK, American banks are increasingly volunteering to share data for the benefit of their customers. The major benefit to customers is that payments can be able to be made in seconds and all from one place, making everything more convenient. Ideally, open banking will also result in a better experience and more financial opportunities for businesses and consumers.
Consumers are taking control of their financial information and businesses can offer services and products that can help customers reach their financial goals. For example, third-party personal financial management tools can access bank account information to help customers track spending, budget, and plan for major purchases. Open banking practices allow business and customers financial freedom across platforms to enable greater collaboration in the scope of service offerings.
How does open banking apply to your business?
That’s a question that many firms are now looking at. With access to data from financial institutions, businesses can now gain clearer insights into the financial activities of current and prospective customers. Data enrichment is probably the biggest benefit of open banking for a business. Customer data such as bank balances, income, actual expenses, and spending habits can now allow businesses to build a complete financial picture of their customers. Through new technology and information sharing, open banking strategies can make this data available instantly, digitally protected secure way. In this way, open banking has reduced the time and the cost that many firms incur by sharing and acquiring paper copies of this information. Not only will businesses be able to plan products and services more efficiently, but customers will also have an improved personalized experience. For example, a retailer with access to information on customer spending habits can identify trends and can offer targeted products and solutions.
Aside from data enhancement, open baking can also improve financial and business models. Accepting credit card transactions has been a practice of online merchants for a while. This was seen as an easy and safe option for consumers to provide payment. Open banking initiatives, however, gives businesses the ability to accept payment directly from bank accounts. This is allowing transactions and payments to be processed more quickly.
Open banking concepts are a fairly recent development in the past few years. Taking advantage of the open banking market can support businesses through all stages of development. With this type of information sharing, you can have access to beneficial customer data that could encourage business growth and development. Open banking can give your business a broader strategy for generating revenue. Having access to a wide range of customer financial data can have a significant impact on the way your business operates and makes money.