Traditionally, it has been difficult for consumers to share consistently and securely [sensitive] information with third parties. This factoid is essential as data is crucial in offering personalized banking services. Financial innovation by emerging and traditional players in the banking and finance industry has increased, mainly driven by the marketplace and, to a lesser extent, due to regulation.
Digital engagement is accelerating due to the changing socio-economics of globalization, resulting in Open Banking being integral to using APIs (Application Programming Interfaces), permitting the sharing of consumer financial data with trusted third parties. This third-party consent creates and distributes novel financial products and services.
A primary objective in banking is to empower customers, providing choices when banking. Putting their customer at the heart of the financial ecosystem encourages innovation. Open banking fosters more customers to enter the banking ecology, creating more tailored and relevant financial products and services.
Four market forces drive open banking:
1. Technology Transformation
Technology transformation is where computing is more abundant, advanced, and affordable. This transformation works in conjunction with the global shifts occurring in account-based payments. Concurrently, the technology has ubiquitous connectivity, smart devices, and pervasive mobile coverage, meaning consumers can expect convenient access, engagement, and service. Advancements and developments in analytics mean that data is interrogated in [near] real-time, providing accurate conclusions about the consumers’ wants, needs, and preferences.
2. The expectations of the consumer
The weight of what the consumer wants has never been more intense. People are consumed and distracted by their mobile devices. Studies suggest that many are on “a” device for at least five hours/ day, creating an expectation of convenience that devices are always on, anyplace, friction-free, resulting in assumption and expectation. Digital banking behemoths and emerging FinTechs are laser-focused on the “consumer experience.” They use consumer-generated data to gain a deeper awareness and understanding of their customer’s behaviors, preferences, and values to create personalized solutions with an expectation of personalization and service.
3. Open Banking
Open Banking initiates competitive pressure emerging in FinTech, globalized digital banking, and countless active users moving into financial services. Digitized tools are more consumer-centric, achieving a better consumer experience, and legacy infrastructures are tangential to digitization. However, digital tools and digitization are both affected by conventional banking regulations.
4. Regulatory Change
In some countries, [financial] policymakers and regulators have proposed regulatory frameworks that envision financial institutions providing third-parties access to certain information based on [consumer] consent. Under these circumstances, the ability to anticipate regulatory change and adapt is no longer a legal or compliance requirement. It is a significant source of competitive advantage.
Open banking proffers more effective competition, increased innovation, and a better customer experience. As new players emerge, open banking optimizes the value chain, especially when implementing robust security standards.
Understanding and wisdom are largely forgotten as we struggle under an avalanche of data and information. Dee Hock, founder and former CEO of Visa, comments that “the ability to receive, utilize, store, transform, and transmit data has expanded beyond comprehension. This industry is built on trust. People have to believe they can trust this way of doing business”.
With these thoughts and tenets of Open Banking, Youtap’s open banking strategy is not to just deliver a platform and a bunch of APIs, but to focus on delivering a single digital banking platform with multiple applications and APIs that securely deploy to the cloud. Youtap supports all core banking platforms and is deployed on a software-as-a-service basis, making it affordable for smaller financial service providers and banks looking to transform. Our White-label applications are designed with the customer in mind, reducing costs and time to market.