How Open Banking is Driving Competition in the Financial Services Industry

Banking technology has evolved rapidly in the last several decades.

It has mainly shifted from the frontline and back office banking staff to control customers' hands. Once, you would have had to visit the bank to make a deposit or a transaction, and now you can do it from your phone anywhere in the world. 

Technology is still going strong too. It has provided us with a new ecosystem, with technology, customers, and financial institutions as a vital part of the process. It is all down to open banking. Open banking facilitates these growing trends, allowing third-party developers to create specialized products piggybacking on bank data. 

It opens financial data to the masses, making these capabilities available everywhere. Governments worldwide have mandated banks to open their data to stimulate competition. Some countries allow the market to lead the movement, with companies establishing relationships. Others are blending the two models. 

What is Open Banking?

Open banking is a term that encompasses any financial use of Application Programming Interfaces to share data. APIs enable a wide variety of services through the exchange of bank data. In addition to account management and payments, it is also necessary for identity verification and credit score ratings. So it's an essential component of technology that streamlines backend processes, and it's what customers expect. 

Platform banking is the most common use of open banking. It allows a financial institution to connect new technology to its existing technology. This includes deposits, lending, document imaging, customer relationship management, electronic funds transfer, general ledges, automated teller machines, and digital banking. 

Banking as a service is another form of open banking, gaining steam. It utilizes the system's foundation to enable non-banks, banks, and core vendors to provide financial products, whether new or existing ones used in a new environment. 

This is just a taste of what open banking can provide; as technology continues to evolve, so will the extent of what open banking can provide. 

How Does Open Banking Drive Competition? 

Today's landscape is competitive, and customers have high expectations. For financial institutions to survive, they must adapt and get on board. Many already have, recognizing the power to incorporate new technologies, consolidate data, and automate backend processes. 

A financial institution needs more resources or time to develop new products, but it can plug in those offerings by teaming up with a technology provider. They can develop those products internally. Instead, the core transforms into a platform you can upgrade, making real-time transfers quickly, opening an account digitally, and video chatting. 

Application programming interfaces (APIs) rely on universal data to exchange data, connect systems and processes, and do so in real-time. This centralized data can be accessed by analytics dashboards, customer relationship management software, and organizations that can determine customer needs effectively. It can also be used to give customers an insight into potential opportunities and financial health insights. 

Consolidating data makes automating backend processes simple. That gives financial institutions more time to focus on the customers. It significantly reduces the risk of mistakes by consolidating data and eliminating the need for dual data entry. 

FinTech Companies Embrace Open Banking

The financial services industry constantly evolves and will continue to do so as customer expectations rise. Opening banking matters, and it matters because it opens the door to competition. 

Technology can improve the offering for customers everywhere, and with plenty of options, people will find what they're looking for. They also gain greater transparency, and it allows non-banking institutions to compete. 

For existing financial institutions looking to embrace open banking, it is essential to carry out due diligence to ensure third-party vendors are qualified. The first step is an open discussion with a provider of core technology. 

This is someone who can offer advice and guidance about what is available on the market. If you want to provide new products, you can better understand how businesses are evolving by joining an incubator forum. For consumers, looking for reputable third-party apps offering open banking is vital.