By | Patrica Davis
Historically, banks have been laggards when it comes to technology. Several banks are still using an information management system that was designed many years back. The reason is that banks have customers’ financial data, and they are very much aware of its sensitivity. So, to ensure data security, they are generally more conservative when it comes to technology adoption.
However, with the advent of digitalization and new technologies, the banking sector is going through a significant shift. And this shift is being driven by the customers themselves, who are becoming more digital-savvy. So, due to this, banks are now turning to open finance to meet the needs of their customers. Moreover, fintech app development companies provide various innovative and technological solutions to banks to develop their products.
Open Finance has already encapsulated the idea of a financial system that works for everyone. Undoubtedly, it will change slightly in the next couple of years, but it will potentially transform the banking sector over the coming decade. According to AlliedMarketResearch, the global Open Banking market is forecasted to reach $123.7 billion by 2031. The growth is anticipated with the increased use of online platforms for making payments and money transfers and the high need for data security. So, what is open finance?
Open finance is one of the significant steps in the banking journey that emphasizes transparency and collaboration among users. MX defines Open Finance as “the ability to access and act on financial data to build personalized experiences, increase the pace of innovation, and drive industry collaboration.” To be more precise, it is the application of open-source principles to financial services. There may be different approaches to Open Finance, but the motive is always to make financial data more accessible to the users.
Benefits of Open Finance for banking
Streamline account opening
As per a report, you will be surprised to know that approximately 1.7 billion adults are unbanked worldwide. For them, Open Finance comes as a significant opportunity as it offers a streamlined way to open financial accounts.
Users can easily open an account with any financial institution of their choice when they have access to their financial data. Digital ID verification and cross-referencing of data can help customers open accounts in different banks.
Improved customer experience
Nowadays, customers have become much more diligent. They want to have a better customer experience and services. According to Mulesoft, more than 27% of customers say they have replaced or considered replacing their traditional banking provider, which does not provide ease of opening an account and better services.
Open Finance can help banks offer a better customer experience to their clients by letting them access their financial data.
Improved data security
As more financial data becomes accessible, the need to secure it is also increasing. Open finance has the potential to improve data security as it offers transparency and collaboration among users.
There is no doubt, when users have access to their financial data, they can quickly identify any fraudulent activity. Also, with the help of Open APIs, banks can develop secure data-sharing protocols.
Access to in-depth customer profile
With Open Finance, banks can have better access to an in-depth customer profile like their spending patterns, income, and other financial data. This can help banks design products that are better suited to the needs of their customers.
For example, with the help of deep learning, a particular set of data, and AI, a budgeting app by any bank can suggest ways to its customers how to save, spend, and invest money more wisely.
Better credit risk assessment
By using Open Finance, banks can have a better understanding of their customer’s financial data, they will be able to assess credit risk in a more efficient way.
For example, by analyzing the customer’s transaction history, banks can predict whether he/she is likely to repay the loan on time or not. Also, it will help financial institutions develop new products that can innovatively address their customers’ needs.
Automates banking operations
Open Finance has ushered a new era for banks and other financial institutions. By leveraging the power of open APIs, organizations can automate various processes.
For example, it enables automatic data sharing between banks and third-party services by streamlining multiple processes like account verification and transaction authorization. This helps customers quickly access and manage their finances through various platforms, increasing convenience and improving user experience.
Open Finance will fundamentally shift how customers access financial services in the coming years. Banks and other financial institutions must embrace this change and adapt their business models accordingly. As of now, the impact of Open Finance is still in its nascent stages. But, with the increasing popularity of fintech applications and services, it is expected to grow.