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3 Benefits of Open Banking for Businesses

3 Benefits of Open Banking for Businesses

February 24, 2022

The financial industry is constantly changing, and for good reasons. To stay relevant in the fast-changing world of finances, banks and financial institutions can partner with fintech companies. Open banking is a not-so new financial innovation that transforms transactions globally and has provided brand new services for customers.. Many companies have implemented it to improve customer experience without the public knowing the advantages of open banking. But now, it’s time to learn about open banking and financial data then what it can do.

What is Open Banking?

Before uncovering the advantages of open banking service, one should know what it is about. How is it different from other financial system types of hyped-up banking like digital banking? Open banking is more like a practice than products or services offered to customers.

The pre-open banking era required us to go to a specific place (a branch office, website, or mobile app) to access our banking accounts. This means you cannot do any transactions using bank A if you’re in a place designed explicitly for bank B. Open banking quite literally opens up this kind of barrier.

In a more comprehensive definition, open banking is a term that describes data sharing between banks or financial institutions and third-party providers (TPPs). Customers have total control over how much data can be shared and accessed by different players. The goal is to improve financial services for the public. Instead of gatekeeping the data, companies now can use the data (granted by the customers) to provide better products and services.

Advantages of Open Banking

This breakthrough benefits company, financial institutions, and customers or the public. Customers can enjoy a faster and easier payment experience. They have easy access to open a new bank account or apply for a loan. Meanwhile, open banking creates a unique opportunity for financial institutions to bring their A-game, creating personalized and innovative banking solutions.

Last but not least, businesses can save more time (and money) when it comes to managing multichannel payments. They can do so in one platform using a finance application programming interface (API).

This is just the tip of the iceberg. Let’s break down more potential benefits of open banking:

  • More purchases — higher conversion rates as the checkout process becomes more seamless.
  • Quick registration and approval — financial services providers now can access customers’ data to evaluate and authorize their loan/account application.
  • Lower fees — no more chargebacks and transaction fees thanks to open banking and finance APIs.

How Does Open Banking Work?

Open banking relies heavily on APIs, a structured software that allows two programs or applications to converse. Open banking is the practice, and an API is a tool. By using it, you can access the data from a bank and utilize it under one platform.

However, the API you use must be authorized by every party involved. This includes banks, financial institutions, government, and regulators. Hence, you should be picky about which API to use. Afterward, you can start your initiatives.

Open Banking in Business

We discussed how open banking benefits businesses, banks, and customers. But what are the benefits from open banking for business in the long run?

1. Understand your customers better

Data is the new currency, and open banking allows you to read your customers’ data in a non-invasive way. Learn more about your customers’ needs and preferences, transaction histories, and financial habits. These insights will help you create well-received products and services that will make your customers say, “Where have you been all my life!”

2. Less admin work

It’s tedious yet an essential job. The good news is that you no longer have to do data entry or upload tons of documents manually. Thanks to open banking, APIs store customers’ data and analyze it automatically. This will save you time and money since you can reduce administrative expenses.

3. Faster KYC verification

Limit fraud and make transactions even more secure with open banking. How so? Verify your customers’ identities by checking their information provided by banks and other companies. This convenient step will accelerate the know your customer (KYC) process.

Now you know the benefits of open banking and how it works. From allowing you to reduce admin works to help you understand your customers better, open banking can help you create better products and services for your customers. If you haven’t jumped on the bandwagon that is the open banking implementation, now it’s the time to do so.