The rise of open banking is revolutionising how people use and interact with their finances.
With open banking, financial service providers can provide more bespoke services for their customers by analysing data from many different sources.
This article explores how big data is changing fintech and what it means for consumers and businesses.
What is open banking?
Essentially, open banking allows customers to share their financial data with authorised third-party providers using APIs. Financial services providers can then use it to offer more personalised services.
"Open Banking is primarily a regulatory framework to foster competition among banks. By opening up data, it will encourage better services for customers. However, different regions around the world approach this in different ways. In some markets, like Australia, Open Banking aims to spur innovation by codifying data ownership with bank customers, thus making banks data' custodians.' In Europe, Open Banking is aimed at opening up the traditional banking sector and fostering more competition between those established banks, neo-banks and fintech companies using customer data," said David Andrzejek, Growth Strategy at DataStax.
For example, a customer could allow a comparison site access to their account to find the best deals on mortgages or insurance. Another example is a customer who allows their bank to share their spending data with a sustainability app. The app could then use that data to identify trends and look for ways to encourage environmentally-friendly spending behaviour in the customer base of their bank partner.
"In the US, there is not the same regulation in place to force banks to open up their data in the same way. Therefore, we do not see US banks forming or executing open banking plans in the near future. Instead, banks are aggressively executing data modernisation programs and building out banking APIs, powered by cloud-native data stacks," added Andrzejek.
Why open banking is important
Customers appreciate open banking because it gives them greater control over their data. It also allows them to access a broader range of services from different providers, leading to increased competition and better deals for consumers.
The rise of open banking has been driven by increased consumer awareness about how companies handle private information and a desire for more customised services from financial institutions.
"Third-party integrations are making consumers' lives easier. Open Banking is fundamentally about enabling customers and corporations to effortlessly leverage third-party apps to improve daily life, rather than rely on the archaic tech and user experience of their personal bank account. For example, a consumer savings and investment app can programmatically determine how much a consumer can save each week and automatically invest those savings in a chosen fund," said Adam Moulson, CCO of Griffin.
How big data is changing fintech
Big data is revolutionising the way financial service providers operate. By analysing large volumes of data, providers can make faster and more informed decisions about their products, services and marketing strategies.
According to Eyal Sivan, Head of Open Banking, Axway, "Open banking is evolving not just vertically into open finance, but also horizontally into open data. Australia was prophetic in their understanding of this progression, as evidenced by their Consumer Data Right (CDR) standard, the only open banking specification that is in no way specific to banking, supporting multiple verticals across the economy right out of the gate."
Big data has helped to create new types of financial tools that weren't previously possible - including smart credit cards with built-in fingerprint scanners; mobile banking apps that can predict when a customer is likely to spend money so they can be targeted with relevant offers at the right time; and apps that can help people save money by automatically cancelling subscriptions they no longer use.
The benefits of having big data across multiple verticals will be crucial to the success of open banking. Financial institutions that can harness the power of data will be in a solid position to provide more innovative services and products to their customers.
What does this mean for businesses?
Open banking has vast potential for businesses of all sizes. By sharing customer data with authorised third-party providers, companies can better understand their customers and their spending habits.
The rise of open banking is likely to significantly impact the way businesses operate in the future. Those that can capitalise on the opportunities it presents are likely to gain a competitive advantage over those who don't.
"As payments become more personalised and data-driven, open banking has a great opportunity to deliver new opportunities through payment initiation. This technology allows customers to connect to their bank directly and authorise transfers from their account, all without leaving their mobile or web environment they are buying from. Open Banking will be vital in this process, connecting customer data from multiple solutions to give users a highly integrated and customised payments experience," noted Ian Johnson, SVP and MD for Marqeta in Europe.
Is open banking the future of fintech?
It's clear that big data is changing fintech for the better, and the trend is only going to continue in the years ahead. Financial service providers who want to stay competitive will need to embrace big data and open banking to provide their customers with the best possible services.
"Open banking prevents legacy financial institutions from using their market power to block or slow emerging new technologies," said Bill Verhelle, founder and CEO of QuickFi.
As a result, some of the more established players in the financial industry are even taking steps to acquire or partner with fintech startups in order to remain competitive.
"When we see an organisation like Visa buying Tink, a Swedish API fintech with just 400 employees, for $2.15 billion, you can be sure that the threat and opportunity that Open Banking represents is being taken seriously," noted Herpreet Oberoi, Vice President of Customer Success at Infostretch.
The bottom line
The move to open banking is unavoidable, considering it is often legislation mandated by government authorities. Open banking has a significant role to play in the future of fintech and businesses.
According to Nick Chandi, CEO & Co-Founder of ForwardAI, "The move towards opening banking is unquestionable. Canada's Advisory Committee on Open Banking published a report last year, and the results of the follow-up survey showed that the industry wants to move ahead on implementing open banking in Canada. Although roughly half of the respondents think the present implementation deadline of 2023 is unrealistic, almost all respondents recognise the potential positive impacts that open banking may create and are eager to start the implementation process."
By taking advantage of the opportunities open banking presents, businesses can gain a significant edge over their competitors. It is only a matter of time until open banking scales across finance into other industries and becomes the norm.