Open Banking is a relatively new financial term that is seeking to use open source technologies to enable third-party developers to build financial applications and related services that could change the way people bank. Sergio Chalbaud recently discussed the topic in an article for The Financial Brand.
This use of APIs means banking data will be available in real-time for use in third-party applications that will provide consumers with better ways to transact, save, lend and invest their money than are currently available. It also means SMEs will gain real-time access to bank data even when using commercial software, and consumers can access better loan terms since lenders have access to historical transactional data to determine a borrower’s risk level.
In the UK, the Open Banking Working Group (OBWG) established in 2015 came up with the Open Banking Standard that provides a new set of models that act as a guide for how open banking data should be created, shared and used. Germany’s version of the standard, the popular Open Bank Project, has been around since 2010, creating an ecosystem of third-party customer applications.
In the US, fin-tech company Mint pioneered the concept of independent financial applications that provide a 360-degree financial view of a consumer’s various bank accounts. However, even with 4,000 to 7,000 new users signing up every day, the lack of an equivalent Open Banking Standard leaves financial innovators vulnerable to the agendas of established banks.
Emerging markets such as Latin America, where only 51% of adults have a bank account, could greatly benefit from an open banking standard, giving many individuals access to credit, loans and investment opportunities for the first time.
By providing financial institutions with the resources they need to keep up with constant technological developments, the Open Banking Standard nurtures productive competition amongst financial services providers to the benefit of consumers. This type of model is already showing promise in the UK, and could lead other regions to adopt similar policies.