Ovik Mkrtchyan, a corporate consultant of Gor Investment Limited, is confident that Open Banking has picked up significant momentum in recent years, helped in large part by the pandemic.
The momentum, which gained pace last year, suggests that open banking could soon become the prime activity of the financial industry. In the banking sector itself, where data sharing has traditionally been heavily regulated, the need to access data and find the most efficient ways to share is becoming a key agenda for participants in the finance game.
Open banking heralds new opportunities for all
Ovik Mkrtchyan explains that open banking is an innovative area of the financial services industry with new products being created almost daily for clients. They’re coming into being based on Open API technologies which has been the result of cooperation between traditional banks and the new kids on the block – the fintech companies. Here’s a simple example of how it works in practice:
You have been using the services of a certain large bank for over a year. You possess several cards, regularly make deposits, and perhaps even invest. Now, your bank is a reliable one but what might be termed a conservative player in the finance market. You’d like to connect smart analytics to your data and get valuable insights into your personal budget and financial habits but to do this the bank, through an open API (open banking interface), must provide access to a third-party company that specialises in smart analytics. You agree to the exchange of data and receive a detailed summary of all your expenses and income, capital, and expected revenue.
Another use case is the aggregation of data from different bank accounts in one application or even a messenger: the system automatically pulls up the data and analyses it in real time.
“Open banking was conceived to improve financial services for the people. Financial institutions share their users’ data with other companies, promoting competition and therefore offering better terms to customers. Banks and fintech companies can offer products that allow the consumer to better control their finances. For example, an application that collects and analyses spending from several bank cards,” comments Ovik Mkrtchyan.
Evaluating client financial ‘behavior’
What’s more, banks that have joined this initiative can evaluate the financial “behaviour” of clients not only based on their information, but also on information from partners. So Open Banking has some very clear advantages. For example, lowering the threshold for accessing financial services, where previously the bank would have refused to give a company a loan because it could not collect sufficient data. Now, by aggregating information from different sources, it can make a decision much faster, and in the future, when open data becomes the norm in many areas, and providers will freely exchange it, information can be used to predict trends and solve global social problems.
One of the latter is that of discouraging gambling, as the fintech company Monzo does, or it may be to help people manage their finances more wisely. Financial trackers Fineo and Zenmoney already offer such services, but in the future Open Banking will allow the scaling of such systems, making them more flexible and accessible. With APIs, financial institutions will be able to provide relevant, convenient, and fast financial services to their entire customer base, whether they be retail or corporate.
Banking operations via a single interface
Several new tools are being made available for users of banking services. The most revealing of them is the ability to use a single application to control all your accounts in different banks. Previously, to complete a new transaction or view the balance in different banks, you had to switch between applications. Open Banking allows you to perform all these operations in a single interface.
In addition, such a global service is an excellent facility for controlling expenses and income, since it collects information from different banks, not just from one. The program can analyse this information and its structure to assist decisions on things like cost optimisation, investing free funds, and obtaining more profitable loans.
The pandemic, and the restrictions that followed, have prompted more people to use online banking from home. Therefore, the demand for solutions that help people manage their finances will only grow – but it is important to note that there is still work to be done to spread Open Banking.
Fintech does not compete with banks
Banks feared that with the advent of Open Banking, fintech companies could eat away market share traditionally associated with the established financial institutions. The reality is to the contrary in fact, because banks can leverage Open Banking, thereby building on their strengths and not competing with fintech, all aimed at ensuring customer satisfaction, improved acquisition and retention, and increased business profitability.
Concludes Ovik Mkrtchyan: “The bank provides the client base, and fintech supplies ready-made technological innovations. However, the critical part is choosing the right fintech companies as partners. In particular, banks often require human resources with a specialised knowledge in data processing and product development that truly meet the needs and desires of their customers. This is where fintech professionals can help – and fill that gap for both retail and corporate banking.”
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