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How Are Open Finance and API Related? Explained By Fintech Companies

How Are Open Finance and API Related? Explained By Fintech Companies

March 2, 2022

The financial industry is changing drastically. The pandemic is definitely a factor in the accelerated transformation of payments, loans, insurance, and wealth management brought about by digital technologies. Understanding the open finance companies makes us realize there is an increase in diversity, competition, efficiency, and inclusivity in financial services across various economies.

Consumers and financial providers need better digital connectivity with the shift from traditional to digital financial activities. This supports their declining physical interactions, as we are no longer limited by time and space. To understand this topic better, the open finance fintech companies explained below focus on open finance and API.

What is open finance? as Explained By Fintech Companies

To provide individualized experiences, accelerate innovation, and foster industry collaboration, open finance gives the capacity to access and act on financial data. This is the meaning of open finance fintech companies explained by MX Technology. According to them, everyone has access to financial data through open finance, allowing them to:

  • Embrace innovative business models
  • Make informed judgments with data insights
  • Create individualized experiences
  • Encourage financial health
  • Reduce risk and fraud

To put it simply, the open finance movement is a global initiative that aims to accelerate the development of a more inclusive and sustainable financial system. It brings together diverse players in the financial industry, including banks, investors, technology companies, regulators, international organizations, and other institutions.

Why is it important for financial institutions?

Even before the pandemic hit us, open finance has been an opportunity. It’s a chance to build on the open banking conceptual framework by giving consumers—small to medium-sized businesses—access to and sharing their data with outside providers. These third parties then can use it to create new goods and services that cater to the consumers’ needs both now and in the future.

In practice, open finance is needed to allow consumers the capacity to safely share personal information with the financial apps and tools they choose to use. That is why they must have secure and dependable access. If they cannot use their favorite financial or banking apps, 72% of the consumers will not hesitate to switch their primary bank.

Open finance and API, what's the relation?

Regulators do not drive open finance; open APIs and other technologies do. An open API is a set of specifications that govern how one application interacts and communicates with another. It is a publicly accessible application programming interface with programmatic access to a proprietary software application or online service.

Beyond open banking, open finance fintech companies explained that access to and sharing consumer data nowadays are not only just for banking but for a broader range of financial services and products. This covers mortgages, credit cards, investments, and pensions. For improved services and individualized solutions to enhance financial wellbeing, customers who participate in open finance provide trustworthy third parties access to their financial footprint.

Open finance APIs eliminate the technological hassle of screen scraping, allowing consumers to access their transaction data without providing their usernames and passwords. In place of credentials and tokens, direct connections offer more robust degrees of security, faster speeds, and higher connection success rates.

Characteristics of an open finance API

Continuing on the APIs topic, fintech startup explained there are a few characteristics of an open finance API, according to the Berlin Group:

  • Modern “RESTful” API set using HTTP/1.1 with TLS 1.2 (or higher) as a transport protocol
  • TPP identification by ETSI-defined eIDAS certificates: QSEALS optional for banks (TPP follows instruction by the bank), QWACS mandated (easy measure to protect against DDOS attacks), Building on all NextGenPSD2 AIS, CoF, and PIS use cases
  • Third Party Provider access beyond PSD2
  • GDPR compliant consent model beyond PSD2
  • Support of Direct Access for PSUs / Corporates
  • eCommerce support
  • Discovery service to obtain the specific implementation details
  • Multilevel SCA/Corporate Banking support

financial technology companies explained that sandbox environments are currently in use as the financial sector moves toward developing open finance guidelines. Ayoconnect offers a variety of solutions to give your business and financial activities the finest security and protection. For more information, visit our website now.