Open banking – Is it a revolution or an evolution for fintech and the financial industry?
Open banking has transformed the way we use and interact with our finances. Open banking offers financial institutions the unique opportunity to give bespoke services. Such services can be developed with the help of efficient data analysis from a range of data sources.
The fintech experts at ADL look into the role big data plays and what it means to businesses and consumers.
Is open banking a way to increase competition within the banking and finance industry?
What is open banking?
Open Banking is a regulatory framework that promotes bank competition, encouraging superior customer service by releasing data.
Different sections of the world, however, take different approaches to this. Open Banking is attempting to foster innovation in some areas. Countries such as Australia are codifying information assets in banking clients and transforming institutions into “data custodians.” According to David Andrzejek, DataStax‘s Growth Strategy,
Open Banking in Europe wants to “open up the traditional banking sector and generate more competition between incumbent banks, neo-banks, and fintech companies with the use of consumer data.”
Importance of open banking
Why open banking?
Customers prefer e-banking because it allows them to have more control over their personal information. It also lets clients choose from a variety of services from other providers, resulting in increased competition and lower rates.
The most significant development is the rise of open banking. Open banking has most commonly been characterized by the growing public knowledge of how a business manages a customer’s personal information. A factor that has resulted in the need for more customized and bespoke solutions from financial institutions.
Consumers’ lives are made easier because of third-party relationships. Individuals and businesses can better their daily lives by using third-party applications. Rather than relying on their bank’s prehistoric technology and user experience, client saving and investing apps can now employ programming. By doing so users can determine how much they could save each week.
How does Fintech work?
Financial technologies differ between financial services and application to application. Machine learning algorithms, blockchain, and data science are being used to handle everything from processing credit risks to running hedge funds. In fact, there’s now a whole category of regulatory technology called “regtech”. A technology that is meant to help businesses like fintech manage the difficult world of compliance and regulatory challenges.
Concerns about cyber security in the fintech business have developed as the industry has evolved. The global expansion of fintech companies and markets has exposed the infrastructure of such companies to be more open to attacks, making it a target for the criminals that live digitally. Fortunately, technology is always improving, allowing fraud risks to be reduced and new threats to be mitigated.
How is Big Data Changing Fintech?
The way commercial banking firms function is changing as a result of big data. Professionals can make faster and more educated judgments about their goods, services, and marketing plans by evaluating huge amounts of data.
Big data has aided in the invention of hitherto unheard-of financial innovations. A few revolutions include:
- Smart credit and debit cards with built in fingerprint scanners.
- Mobile payment applications that can accurately predict when a customer is looking to spend, allowing the right offers to be visible.
- Devices that allow users to save money by cancellinig unused subscriptions.
The advantages of big data cover several areas and is crucial to the success of open banking.
Why is open banking the future of Fintech?
With the cooperation of the consumer, open banking allows for the electronic and secure interchange of financial information.
Banks and FinTech’s can now use the latest in technology to develop new applications and services. Applications and services that are tailored specifically to the needs of their clients. API (Application Processing Interface) is a key technology that allows financial institutions to take banking to the next level. For instance, by using such technologies, licensed suppliers are able to access customer data via an open API (application programming interface).
APIs are not new to the world of banking. APIs are simply used as a tool for allowing software programs to connect with one another, offering new avenues for innovation. This is because banks all over the world are making their APIs available to licensed third-party providers. As a result, it is very evident that open business models and open APIs will drive the future of banking.
To sum up
Big Data will become the lifeblood of countless firms as it continues to gain popularity among fintech companies. Big data is always being used to produce meaningful insights that allow fintech companies to be more competent. This results in fintech companies offering services across all channels to their customers.
Similarly, fintech companies can gain an advantage by upgrading their services and providing more tailored products and services. Similarly, fintech companies are focused on providing personalized financial services. Big data is the ideal ally to help maintain their user-centric approach.
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