13 January 2019 became a turning point for the fintech sphere in the UK. Open Banking was officially launched. What is it and how has it changed the financial services so far? Scroll down to see the answers.

According to the Farrell Report, Open Banking (OB) gets access to the following items:

  • Deposit products
  • Savings accounts
  • Call accounts
  • Term deposits
  • Current accounts
  • Cheque accounts
  • Debit card accounts
  • Transactional accounts
  • Personal basic accounts
  • GST and tax accounts
  • Cash management accounts
  • Farm management deposits
  • Pensioner deeming accounts
  • Mortgage offset accounts
  • Trust accounts
  • Retirement savings accounts
  • Foreign currency accounts Lending products
  • Mortgages
  • Business finance
  • Personal loans
  • Lines of credit (personal and business)
  • Overdrafts (personal and business)
  • Consumer leases
  • Credit and charge cards (personal and business)
  • Asset finance (and leases)

We can see that Open Banking can have access to any front and back-office operations in banks. No more hidden or secret information. Is it good for financial organizations? Is it safe enough? What can it provide for average customers? Let’s consider its advantages and drawbacks if there are any.

The whole OB system can be divided into three components:

  • Open data. This part involves the use of an API, through which a third party gains access to customer data. Thus, the client decides what and with whom to share.
  • Open process. The client provides third parties with access to their personal data. Thanks to this, the intermediary can pay bills on behalf of the client.
  • Open products. This component allows the client to change the bank account or service provider without a personal presence.

Open Banking means the use of API – the application programming interface. Open APIs allow you to integrate solutions from different providers. The transition to open APIs is actively discussed.

There are three types of open APIs:

  • Commercial – the ones that offer custom services for the customers
  • Infrastructure including quick payment systems and biometric system
  • Regulatory – necessary for reporting to the relevant regulatory authorities
Open Banking Ecosystem | Diceus

What do we have now in the UK, Germany, and the US?

There’s a big number of regulated and trusted providers in the UK. The number of users is growing each month.

According to YouGov research, about 72% of UK adults don’t know anything about OB. PwC researchers state that only 18% of people know its meaning and how they can use it. These figures will change in some time and banks have a great opportunity to implement changes in their business models before the vast majority of people will shift to Open Banking.

There’s a global trend to compare offers from several banks and pick up the one that seems to be more attractive or beneficial. We can see how it has been working in Germany since 2010 and most of the local banks coexist within a single ecosystem of third-party applications used by the customers.

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Despite the fact that 2010 was a turning point in Germany, the Payment Services Directive appeared only in 2016. It’s used for regulating financial innovations. According to this directive, a customer can choose a service provider while banks have to open their APIs to let third parties access data from the bank accounts.

In the US market, we can easily find applications that collect and aggregate data from several bank accounts and let customers compare financial products. Some experts state that such apps like Mint are a bit vulnerable to the goals of banks. There are no reliable proofs for such statements, so we’ll consider this to be just a theory.

Open banking vs GDPR

OB opens the gates for third-party providers and to the sensitive data from banks. Customers get worried about the safety of their personal data and if it’s truly beneficial for them. This is an important question that has to be solved in the nearest future. However, this issue refers only to the residents of the EU where GDPR regulates access to personal data.

PwC states that about 48% of bank customers don’t trust third-party providers because of security concerns. They prefer traditional services.

Open Banking and GDPR | Diceus

What is the influence of open banking today?

There are a lot of doubts about how many benefits banks get from the use of Open Banking service providers. From a technical point of view, OB is a comprehensive API library that allows banks and third-party organizations to safely exchange data for the implementation of operations on opening and managing accounts, issuing and servicing cards and other services.

Not all progressive banks have such libraries yet. Today, the launch of any OB project requires major technical improvements on the bank side.

The main goal of OB is to create a competitive and innovative system in the financial industry. This will require the joint work of fintech companies and large banks. Fintech will be able to create new services and products through access to a client base provided by large financial organizations.

Thanks to the OB philosophy, they will be able to transfer data among several banks to make up a great user experience while using new products and services. In turn, it is important for clients to be sure that both they and the banks will benefit equally from the introduction of an Open Banking system.

Open Banking for a better UX | Diceus

Small banks will be able to attract new clients, as they will have access to the databases of large enterprises. However, data exchange will require significant costs from them at the initial stages.

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In addition, the concept will allow banks to be customer-oriented, anticipating their expectations, as well as analyze existing services to quickly provide the right product for the client.

Advantages of open banking for financial organizations

Financial organizations are not particularly willing to share their data, but OB will open up new opportunities for them and will bring benefits: reduce costs, fraud, and money laundering, as well as make detection of malfunctions in the system more accessible due to the exchange of data with other organizations.

For customers, this is an opportunity to use new products. While using the OB system, banks can track the creditworthiness of a client through their banking operations. For example, you will be able to improve the lending process, as banks will have full reporting on cash inflows and outflows.

Benefits of Open Banking | Diceus

How to benefit from open banking?

Banks can get data about current and future consumers in a moment. Third-party services will push financial organizations to adjust innovative solutions to improve the customer’s experience. Regulators will improve directives and other norms that will control and supervise the activities of all the financial organizations.

If you look for ways to offer your clients a smooth and nice experience through a mobile or web application that will aggregate data and offer the best-matching options, the DICEUS team can cope with this task. We’ll become your technology partner and offer a software solution that will fully meet your business needs.