Open banking means a practice of allowing a third-party payment and other financial services provider to securely make use of a banks’ customer information like banking transactions through software. and other financial service providers to access and other data from banks and financial institutions.
These Third-party services providers will be able to access the data through the use of “Application Programming Interfaces” or simply APIs. With the global economy evolving continuously, The concept open banking is also being popularized, simply because of its fast pace and increasingly secured transactions without geographical boundaries around the globe. This also provided consumers with more opportunities to manage their finances through the third parties.
How does open banking work?
Open banking allows third-party payment and other financial services to gain access to financial and personal data from their customers’ banks. But, for this to materialize, the customer must allow the service provider grant access to the share the information, usually through an online consent form following by agreeing to terms and conditions mentioned. Only after this, the providers can access the relevant shared data thru exposed APIs.
These APIs can also have access to consumer’s transaction history to assist identify relevant products and services than can personalize the customer experience.
Open banking benefits small businesses better than market leaders as it paves way for new avenues of opportunity. New businesses can easily enter the market with smaller and affordable alternatives that overcome the disadvantages of conventional financial services. This may pressurize the existing market players to strategize their operations in such a way they would not be disrupted by the new entrants. The main objective of open banking is to bring down costs and to foster the adoption of contemporary technology including improvement in customer service. Rather than managing financial transaction traditionally, by capitalizing on open banking, the financial institutions can have a better customer relationship.
Like all any other safety and confidentiality concerns attached to digital financial services including the personal data protection, open banking is also not left out with the risks that are mentioned above both for service providers as well as the consumers. APIs are also not safe from the risks that are associated with digital transactions. There exists certain amount of risk, with most stemming out from weak security, “hacking”, and other insider threats.
Prof. Smithashree C R