How Open Finance Shapes the Future of Banking, Learn The Reasons Why Fintech Is Important
February 7, 2022
The era of big data opens a new demand. Data is everywhere, sure, but how can one access and extract it? Compiling data takes time, too. In a fast-paced world where the “rabbits” always win the race to gain traction, open finance is the ammunition and one key aspect of why fintech is important in accelerating digital transformation—specifically in banking. What is it, and how can open finance be Indonesia's new primadonna of fintech solutions?
A glimpse of open finance and main reasons why fintech is important?
When you think of banks with traditional financial service, you immediately imagine the closed-off concrete walls, polished marble floors, and cold interiors. Interestingly, people associate banks with the rigidness of money management. A survey from The Ascent finds that customers want high-quality service, low fees, security and fraud protection, and mobile or online access. Most banks offer these key findings, but the same survey also reports that 52% of their respondents will consider switching to other banks that provide better financial technology solutions.
Rising above competitors and providing customers with cutting-edge financial services are the two ultimate answers to why fintech is important in banking. First, open banking comes in the vicinity, which supports multiple banks to share, access, and extract data on one API. Then, it evolves into open finance that widens the API to other financial company, such as insurance companies. This means more data like non-banking, KYC, insurance, pension, and tax become available.
Furthermore, open finance of fintech services is an excellent accelerator for banks and fintech companies startup to take over a more comprehensive range of customers. These companies can increase their revenues, gain deeper insights into their customers, and cut down losses—all while improving security measures.
Open finance helps fintech build user-centric financial services
Customers are always looking for the best products that can give them maximum benefits. The catch is that one product may suit one customer’s needs but not the other. For example, virtual accounts are an excellent way for online store owners who want a quick interbank payment. However, businesses that sell subscription-based products like insurance or streaming services companies prefer a more direct payment approach that can be automated.
Creating new products for niche markets will cost a company a hefty amount of money, not to mention the long nights and days to develop such a thing. Open finance is a unique shortcut to this dilemma. Companies can partner up with fintech companies to build user-centric fintech solutions without the need to re-brand. In fact, McKinsey reports that nearly 40% of banks have selected tech partners to deliver fresh offerings.
Financial industry like banks already know how to operate their business. But with the help of tech companies, they can dissect the wants and needs of the public and develop tailored services. Just like how Ayoconnect’s open finance API helps actuate direct debit services for several financial institutions in Indonesia. Ayoconnect has also supported digital products and auto-billing services from top tech startup and fintech companies.
Since open API stores a substantial amount of data, companies can compare customer profiles and find similar pain points they can solve. The mixture between financial and technology assets is one component of why fintech is important, especially in a highly digitized world. As fintech customers’ demands grow and more fintech startup solutions start to come, open finance offers more possibilities to welcome the future of banking with customer-centric products and services.
Bank Indonesia to create a unified national payment system by 2025
Bank Indonesia sees the undefeated trend of internet usage. Even digital banking ticket sizes almost tripled in two years. Bank Indonesia has announced its unified national payment system blueprint, which will be completed by 2025. One of the initiatives is open finance. The goal is to build a sustainable digital economy and ecosystem in Indonesia. To do so, Bank Indonesia, as the country's central bank, plans to utilize API, blockchain and DLT, and cloud computing, as well as data and artificial intelligence.
In its practice, open API still lacks regulations and is not yet standardized. Therefore, the blueprint will include all open APIs in Indonesia's data, technical, security, and governance standards. This standardization effort will consist of:
The scope of data available for access
Data format and structure
Security measures (e.g., encryption, authorization, and authentication)
API life cycle
Standard governing body
All in all, this announcement has cemented that open finance is here to stay and is encouraged by Indonesia's central bank and government body. Standardization will help API providers to scale up and help protect users or customers from cyberattacks.
Customers will embrace open finance
Open finance is heavier on the pros rather than the cons for the public. By implementing open finance, the onboarding process becomes simpler and faster. Financial institutions don’t need to call a customer’s relatives and managers or check the customer’s address. They can check the customer’s data on the API shared by other companies. Your new bank accounts and loan applications get processed much faster.
Indonesians like the digital way of banking. According to a 2019 McKinsey survey, more than half of their respondents are interested in using digital bank mobile applications. If we take a detour to North America and the UK, open finance is gaining momentum, too. Open banking payments are growing at a whopping 365% per quarter in the UK, whereas more than 80% of Mastercard’s users are already connecting their bank accounts with tech apps.
Now is the first baby step of open finance in Indonesia — not much is known, but most people anticipate its every movement. One thing is for sure; customers need to trust this new concept more than ever. As more and more companies begin to embrace the possibility of open finance and accept why fintech is important, innovative financial solutions will prove to customers that open finance is the future of banking.
In support of financial inclusion
Why is open finance such a big deal, not only in Indonesia but also in Latin America? Financial inclusion is the answer. For the past few years, the Indonesian government has planned to accelerate digitization and improve financial literacy in rural areas. Around 66% of the population is still unbanked, even though the internet penetration rate has increased yearly.
Accessibility is one thing that traditional banks lack and why fintech is important. Opening a branch office in villages or small towns may not be feasible for conventional banks. But when partnered with fintech companies, open finance can bridge this gap. Thus, more financial institutions can extend their products and services to rural areas, thanks to the transparency of open finance.
With all the benefits mentioned above, it’s safe to say that open finance has become one of the key aspects in accelerating the digital banking revolution. However, this initiative will not be possible without open APIs. Fortunately, it’s not difficult to find a reliable open API platform because you can utilize one through Ayoconnect. Click here to take part in shaping the future of banking with Ayoconnect!
Subscribe to our Newsletter
Signup for our weekly newsletter to get the latest news, updates, and amazing offers delivered directly in your inbox.