How Open Banking is Transforming Financial Services
February 11, 2022
Out with the old, in with the new. The economic world has long embraced modern technology to cut time and costs in the financial sector, efficiently providing more secure financial services to users worldwide. Every transaction that we do on a daily basis, from purchasing internet packages, electricity tokens, investment, life insurance, buying asset, all the way to the responsibility of paying taxes, is made possible thanks to banking services. Banking services have touched almost every aspect of transactions and offered better, faster, and offer more security for payment experience and your saving your investment fund.
An important question then emerged, “How do we reach the stage where open banking transforms the financial services industry?”
Open banking is a system that provides third-party access to financial data through application programming interfaces or APIs. It offers tailored financial services for consumers that can make their lives much more accessible. Furthermore, with open banking, consumers have more freedom than ever to control how their data is accessed and used.
So, how does open banking work, and how can it make financial services even more effortless than before?
The Wonderful Work of APIs
Wouldn’t it be great to never bring your power socket adapter every time you travel overseas? That is also what it feels like when we use Application Program Interfaces (APIs) to enable many banking services! APIs, as a breakthrough innovation in the financial technology sector, work like a versatile socket. It bridges different systems into one, allowing them to work together seamlessly. With APIs, the financial services sector can facilitate the once-intricate process of switching from one bank account to another in seconds.
In terms of open banking, APIs allow financial institutions to access financial information needed to develop new apps and services, thus providing account holders with greater financial transparency options.
With access to financial information provided by APIs, financial services companies can offer customers relevant financial products without having to provide a full suite of banking services. In addition to that, they can also allow customers to access various bank accounts as well as credit cards, mortgages, and loans in one place.
The ultimate benefit of using an API network is the ability to bring all systems together and accelerate the efficiency of this integration process.
Open Banking Allows Consumers to Enjoy a Mutually Agreed Seamless Transaction
In Indonesia, the practice of open banking is regulated by Bank Indonesia (BI). BI has created a set of policies related to open banking, Open API Framework. It assists Indonesia’s open banking development in a systematic and structured manner to ensure a safe, guaranteed interlinks between banks and fintech. So it can improve the payment system efficiency throughout the country.
The Open API Framework also notes that consumers have to give their consent to every transaction. One of the best API components for consumers is the ability to choose how financial services providers can use and share your data. For example, when a customer signs up for a service with a fintech company, the system will send the request to access data to the customer’s bank for his consent.
In fact, consent is actually one of the guiding principles that carry out the BI’s Open API Framework. Other principles include customer protection, interoperability, openness, flexibility, independence, governance, and novelty.
With Open API Framework, the practice of open banking by several financial services firms is made possible by following a set of principles and rules created by financial services authority. Therefore, it allows consumers to enjoy a seamless transaction that’s mutually agreed by many parties, the many financial companies, investor, insurance companies, and many more segment.
How Banks and Financial Institutions Embrace Open Banking
Not just for consumers, open banking brings many benefits for businesses, such as financial advisors, investment services, and many financial services. The current trends of e-wallets, mobile banking, and online financial services make it almost impossible for companies to move forward without implementing open banking. In Indonesia, BRI is one of the many banks that have pledged their support for open banking in the financial markets.
Through BRIAPI, they simplify the integration process of BRI’s banking services and products with their partners’ business and digital platforms for commercial banking. BRIAPI allows third parties such as digital startups, fintech, and ESG enablers to collaborate and integrate with BRI’s banking services and products.
But with the introduction of open banking, new financial services providers have as many opportunities as the big players. Other than that, here are several other benefits of open banking for businesses:
● The field gets more competitive, pushing for better products and services
● The giant leap to digitalization, allowing them to target more consumers
● The ability to increase consumers engagement and loyalty
● Better brand reputation
As a strategic solution, open banking aims to drive digital transformation even more focused, specifically for financial services. For that reason, Bank Indonesia has created Open API Framework as a decisive measure. This regulatory framework allows banks and financial services companies in Indonesia to make the most of digital innovation opportunities that provide consumer-centric services and products. As business keeps developing and market demands keep growing, open banking still is the better solution for a fast-paced ecosystem.
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