The world is on the cusp of an epochal transformation in digital financial services. Open Banking Technology is replete with potential business models as social media were 15 years ago and e-commerce 20 years ago.

Open Banking, fuelled by regulatory, technology, and competitive dynamics, brings hyper-relevant data and platform-based distribution networks to the fold of fintech companies. This helps them deliver a seamless and engaging digital experience that customers are eagerly looking for.

One of the most challenging aspects of Open Banking is the security and compliance concerns. Hence, sharing data only with the consent of the customers (i.e., regulated access) is at the heart of Open Banking Services. However, it is interesting to note, that a study revealed — 60% of Americans choose fintech over privacy!

Let us start by understanding the need for this disruption in the financial services sector called — Open Banking

We are in an era where immediate access to credit card payments, bill payments, mobile recharges, direct debit control, mortgage comparisons and lending, and so much more is achieved with a mere swipe on a smartphone! These apps are powered by financial data available from banks and evolve with the changing need of the hour.

Fintech startups and firms are one of the major drivers of such changes. The sole aim of any startup is to create new products and services that solve a consumer problem and distinguish themselves from their competitors. And why should financial services startups be any different?

Banks are traditionally known to offer services with higher operational costs and complexities. Today, customers look forward to personalized solutions, even in the banking domain. However, the risk-averseness of banks and tech-driven tools aimed at offering hyper-personalized financial solutions by Fintechs have opened the doors for Open Banking Technology worldwide.

Thus, Open Banking System is the process of banks and other financial institutions making data available for regulated service providers to access, use, and share via Application Programming Interfaces (APIs).

Open Banking facilitates the networking of accounts and data across institutions for use by consumers, financial institutions, and Third-Party Service Providers (TPPs). It allows new companies and new products to penetrate the market, by using this data in helpful, and innovative ways.

Listed below are a few of the reasons why Fintechs and Open Banking have become indispensable to end customers:

  • Greater focus on customer experience over simply offering traditional banking services
  • Ever-growing influence of the internet and smartphones call for innovative mobile apps
  • Completely online end-to-end cashflow
  • Financial solutions that drastically reduce the turnaround time between two processes as opposed to conventional operational delays.
  • Comprehensive solutions that bring together diverse applications on a unified platform

Why must Fintechs collaborate with Banks to harness the true potential of the Open Banking System?

In the $400+ billion Open Data Economy, fintech can influence the entire financial value chain beyond payments and retail banking. They have the technology, strategy, and resources to develop apps and innovative solutions that enhance user experience.

Fintechs aspire to be the one-stop solution to all the banking-related activities of customers (B2B and B2C). However, the requirements for such a transition are uneconomical and time-consuming. Thus, taking away from the core business aspects like technology and innovation.

To leverage the end benefits of Open Banking Technology, fintech must partner with traditional banks to facilitate:

Open Banking Platform — A Global Perspective

In many nations, Open Banking is finding many takers. In the European Union, the Payment Services Directive, or PSD2, has jump-started growth from small business lending to new payment options like cryptocurrency to more lucrative savings accounts. In fact, customers in the largest trade block are loving it more than ever.

Similar regulatory initiatives are underway around the world in countries like Japan, Singapore, and Australia. Though the US government has been less forthcoming in enacting pro-Open Banking legislation, the Biden administration has given enough hints at boosting pro-Open Banking steps like the executive order issued on June 9,

As on the expected lines, it is tech leaders like CTOs and CIOs of fintech firms who must herald the new path to make customers future-ready by tapping the digital impulses of the times.

Open Platform Banking has enriched the Fintech companies’ goals in the following ways:

  • Open Banking System allows Fintechs to access consumer banking trends alongside individual account details from banks. They leverage these insights to design innovative financial products for end customers.
  • Fintechs get an opportunity to offer frictionless customer experience in real time through innovative financial tools like PFM, credit services, wealth management, etc.
  • Post-pandemic, the use of mobile banking channels has increased by 20–50% and is expected to grow even further. Fintechs have an upper hand with their tech-driven Open Banking business framework to leverage this trend and gain profits.
  • With the vast amounts of data being shared, Fintech firms can bridge the gap between ‘what traditional banks offer’ and ‘what customers expect’ with speed and efficiency.
  • They also get the chance to partner with distinguished banks and access the banking data of their distinguished customers. Conversely, banks must also scout for the best Fintech firms in the market to collaborate with and promote customer acquisition and retention through improved banking services and tools.
  • This partnership allows the freedom to test new ideas beyond the infrastructural and cultural constraints of banks and helps overcome internal obstacles to innovation.

What are the pain points that Fintech firms have to navigate to ensure end benefits from Open Platform Banking?

As digital transformation is gathering more pace, customers are looking for faster, better, and more seamless experiences. This calls for burning the midnight oil on the part of CTOs and CIOs at Fintechs to be more agile and keep pace with market trends and competition.

To further elaborate on the above-showcased challenges, here is a bit of a detailed explanation of what it is all about:

  • Since Fintechs bring with them a culture of disruption, tech leaders have to come up with the necessary gateway to innovations as they operate outside the purview of the traditional banking framework.
  • Also, the prime focus of CTOs and CIOs at fintech must be — bringing out the core competencies while sharing the burdens of compliance, risk, and costs with financial institutions (banks).
  • The Fintechs have to rely on more rigorous systems to continually seek consumer consent for data to be shared.
  • The type and volume of banking data shared are incredibly extensive and Fintechs need high-end software to manage and process the same usefully.
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