The financial industry contributed £119 billion in 2017 to the UK economy; standing at 6.5% of the total economic output. The numbers might look modest, but it has a significant impact on the economy of the nation as a whole.
Online banking and similar services are growing at an increasing scale and offering tailored financial services to their customers. Such services have a huge share in the British financial market with nearly 63% of individuals using online banking on a regular basis. Today, most of the UK citizens rely on mobile banking for almost everything from online shopping, payments to international remittances. Everyone from Apple pay to Android Pay to Amazon to small budget apps are getting in on the action where users share their personal & financial information to ease their purchasing process.
For an industry playing such an important part of everyday life; security and confidentiality of personal information is still a major concern. A lot of individuals are still very conservative when it comes to divulging data that may be shared with third parties.
On the other hand, fintech companies are growing day by day furthering online payment services at the same time ensuring it is secure, user-friendly and convenient. It is building strong competition and pushing companies to provide specific and intelligent banking services to every sector.
Open Banking is one such technology launched in the UK in January 2018, where it enables customers and banks to share personal and financial information of the users without risking the confidentiality and privacy of customers. It is seen as a way of sharing financial information in the most secure way possible and on legal grounds.
So what exactly is Open Banking?
In simple terms, all the banks regulated in the UK must allow customers to share financial details like payments, spending, statements, and services they use to the authorised service providers who offer various financial products or services.
It is built in a manner to help every small, medium and large sized business to offer tailored services to customers and help them in better using every penny earned, spent or saved. A whole new world of fintech services have opened up as a result of the Open Banking platform, which is regulated by the Financial Conduct Authority (FCA) and other European authorities.
With this new regulation, Banks are able to share more customer information than was previously possible via standardised API technology. These APIs are intelligent software systems which allow the exchange and flow of data in a controlled and secure manner. With the Open Banking APIs, the traditional financial services get a renewed look with the aim of delivering a more powerful, efficient and secure grounds to both customers as well as businesses.
Many startups and established firms are using Open Banking to provide smarter ways for online payments, budget management, insurance, remittance and various other financial needs. With the implementation of Open Banking; there is a strong and healthy competition between banking and non-banking firms and those able to provide faster, simpler and more secure financial services making it to the top of fintech chain.
Open Banking is also opening gates for non-banking firms to offer full-fledged services with more innovative and customer-centric services by leveraging the available APIs. It is highly beneficial from almost every angle fostering new innovations and collaborations between banking and non-banking firms. The new technology is able to improve the financial sector by providing enhanced methods of identity verification, validations and prevention of fraud and money laundering.
Additionally, the Payment Services Directive 2 has shifted the power of data from banks and financial institutions to customers. It is essentially the customers’ choice to share their personal data in a secure environment in exchange for tailored financial services.
For example, a customer can authorize a bank to share their information to regulated third parties in exchange for improved and personalised banking services from money management to international transfers.
With this, firms can help customers in analysing income & expenditure, payments, savings and online shopping by integrating AI with the available open banking services.
For example; your bank may not tell you the best savings options available depending upon your income. In this case, authorised third parties can help you decide the best savings options available by analysing the options provided by various service providers.
Irrespective of the industry, data has become a significant factor in business growth and better customer service. The proper use of data on ethical terms is very important and any breach will be highly detrimental to both the customer as well as the business.
Open Banking has so much potential to enhance various sectors within the financial industry, but it may well ultimately depends on the customers’ willingness to accept and embrace this technology.