Open banking has been enabling bank operations to evolve for 20 years. However, if you’re still not up to speed on what exactly is a bank API, we will try to clear the fog with this article.
Open banking API – the definition
First and foremost is to understand that API stands for Application Programming Interface. Open banking as a whole is a system that banks use to create open APIs that securely share their customer’s data with their consent. By integrating with a bank’s API, third parties can access financial information needed to develop novel apps and services. At the same time, for the account holder, it creates greater financial transparency and opens up alternative choices.
The typical user of an open banking API would be a third-party service provider, such as a tech startup or online financial service vendor. It is important to note that while open banking allows for the sharing of consumer financial data and their personal information, it always requires consent from the consumer themselves. Consent might be given by ticking a box that states that you agree with terms and conditions, or some similar approach.
The core benefits of using open banking
Open banking is all about opening access to bank data. It applies to any customer whose financial information can be effortlessly administered and accumulated in one place for further analysis by a third party. Open banking APIs are used for the greater benefit of consumers, since they provide open access to all financial data from banking and other financial institutions. Open banking greatly reduces fraud risks and secures consumer information without requiring a password or sharing other confidential information.
The biggest benefit that open banking APIs bring to consumers is the control over their financial data and subsequent decision-making. Whether they need a loan or just a better financial service provider – they can access all the information in one place and evaluate their prospects accordingly. For example, a loan company can analyse the financial information of an individual requiring a loan and propose a more appropriate offer with better interest rates. On the other hand, the consumer can evaluate their financial state and realistically assess if they can handle debt. Previously, before the open banking era, customers had to use third-party providers, which required the sharing of their sensitive information and login details to their bank accounts before they could access and review financial data.
Finally, open banking APIs will increase competition between establishment banks and alternative banks. Consequently, this will lead to lower costs, better customer acquisition, and retention through innovative technology.
Article prepared by Nordigen.com