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10 Benefits of Open Banking for Business and customers
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10 Benefits of Open Banking for Business and customers

February 4, 2022

Undoubtedly, the financial services and Fintech industry is one of the most competitive landscapes in the world today. In each country, the financial services sector has become one of the most important driving factor of a country's economy. In Indonesia, where the divide between the 'banked and unbanked' remained huge as ever. The total number of formal financial institution (bank) account holders is only around 80,27 million, where the country's population stands at 273 million.

However, although the financial sector in Indonesia has a huge untapped potential, providing a new financial service in this country is more likely to be costly and time-consuming. Not to mention the geographical challenges, where many Indonesian people still can not afford to use financial services since it has not reached their area of living.

This is already a reality in Europe, where member states in EU will be obliged to abide by PSD2 regulatory standards by 2018. This regulation aims to increase competition in the financial industry by requiring European banks to release Open Banking APIs in order to provide Account Information Service Providers (AISPs) and Payment Service Providers (PSPs) access to customer information (e.g. account balance).

Now that the market faces significant challenges, such as changes in users' consumption practices, privacy concerns and technological advances, it's essential to learn more about all the benefits of open banking that businesses and customers can get. Open banking is an online banking process that uses open APIs (application programming interface) to provide third-party financial service providers with legal access to user's financial data via Open API, all while observing the 'open banking standard'.

1. Benefits of open banking: Automation of manual tasks

Businesses can stay competitive by using open banking to automate manual tasks. To do digital automation, access to data is required. It’ll be easier for financial service providers to access account holder’s data if integrated systems are in place. Automation also offers long-term cost-effectiveness, a worthwhile investment since the world is becoming increasingly digitized. Considering this benefit, according to Accenture, in the next 3-5 years, 76% of banks worldwide expect open banking API utilization to increase by 50% or more.

2. Simpler, more efficient business processes

There are many essential things to keep up with business owners, from payroll management, accounting, and auditing. To do these effectively, business owners can use open banking data to assist as it facilitates access to financial data by financial institutions. Now business owners can fully reap the benefit from open banking by delegating these responsibilities to an external party, so they can devote more of their energies to improving relationships with employees, enhancing their service offerings, and overseeing marketing efforts.

3. Easier access to business loans

Businesses, especially the smaller ones, more often than not, need loans to scale their operations. It’s never been easier to access business loans now, with open banking, information and data from participating banks get accessed by the loan underwriting bank with a few clicks. Thanks to its simplicity, open banking system has brought unprecedented convenience to business owners by allowing them to determine their loan eligibility quickly without manually submitting any document or financial statements. This saves time, effort, and resources for both business owners and lending institutions.

4. Costs reduction

If high merchant fees eat into your hard-earned profits, businesses adopt open banking to reduce costs. Since open banking may not require any point of sale (POS) terminals and card readers, business owners can reduce their merchant service fees. Open banking can also accommodate large payments at a lower cost than card-based payments, so that you can make more profits.

5. Improved customer experience

Open banking offers a better customer experience because consumer and business no longer need to give your login details or a card reader to make payments. This is also one of the benefits of open banking. To secure and approve the transaction, you can usually use a thumbprint or Face ID because your mobile banking application utilizes 2-factor authentication with your device identifier and your thumbprint, face, or pin.

6. Customers have full control over their financial data

Some significant challenges in Indonesia regarding financial products and services are the population's distrust of it and the perception of inaccessibility to financial institutions. This reality is why financial institutions have to find ways to convince potential customers about their products and services' benefits, focusing on security and transparency.

That's why the implementation of open banking is so beneficial. It allows customers to have full control over how their financial data is used and who can access it. It also gives customers a sense of security that their financial data are handled under the best security standards.

7. Increased number of more relevant products

Customers can get more personalized and relevant banking products because one of the main benefits of open banking is that it allows third parties to access more data sources to tailor experiences to meet consumers' needs. Open banking provides users with easy access to their financial information so that they can have services that match their consumption and a much simpler, friendlier, and faster experience.

With open banking, customers will now gain the opportunity to access different services from one place. They would also enjoy the best offers available with greater transparency. It's just a matter of "one click" for customers to view their current financial situation in a single application on their smartphone.

8. Improved personal finances

Getting your personal finances better organized should save your time, spare you stress, and swell your disposable income. You can do it by using open banking, which provides products with visibility, control, and timely advice on optimizing the use of your finances. An example of this practice is that many services available today offer an application where users can manage their money, create budgets, and track their current account and credit card spending, all in one place.

9. Easier access to financial services like loans and credit

Customers can access loans and credit easier by using open banking because it has revolutionized the banking industry. Open banking allows banks and lenders to entirely change how they operate, empowering innovation in every service they provide, including various credit services to which customers can apply.

Banks and fintech using open finance to nurture their banking models can now increase the amount of credit and provide credit offers much faster to help customers get the money they need. What makes it even more interesting is that it’s not only for traditional credit models, as these models help to promote and create new products. “Buy now, pay later” service, for example, offers customers the possibility of buying in installments in different stores and establishments for people who do not have a credit history or a credit card.

10. Fewer visits to physical, traditional banks

The last and probably the most significant benefit of open banking for customers are fewer visits to physical banks. Open banking allows customers to no longer consider visiting the bank as an indispensable part of their life. Open banking means that the bank isn't an institution but mainly a service. This is getting more important as the need to "see the bank in person" has been incredibly inconvenient during the COVID-19 pandemic.

Business owners and customers can get all benefits of open banking mentioned above. Surely the benefits can radically increase depending on the creativity and new services that financial companies are willing to develop. Just make sure you work with a trusted and experienced open banking service provider like Ayoconnect.

Ayoconnect, established in 2016, has connected more than 1000 companies in Indonesia to a centralized Open API ecosystem that integrates online and offline retail business with financial service providers. Find out more about Ayoconnect here!