The regulator and the market itself, both banks and fintech services, are looking for the best options for the implementation of the Open Banking concept and the use of Open API technology. What is Open Banking and Open API and what advantages these technologies give banks and their clients?
Born2Invest application is fast and easy way to check the latest business headlines. It gives users access to recent publications and stories, media and objective analysis, thematic sections and feeds.
Open Banking and Open API – what is this for?
Open Banking is a concept that can be used to create your own ecosystem. One in which banks provide access to data and services to third-party companies. In turn, banks will be able to use the data to analyze and distribute products. One of the key advantages of Open Banking is the ability to deploy the banking service to the client and offer more services in a more convenient format. Thanks to Open Banking barriers to entry into the financial sector are being reduced for third-party companies, and competition in the market is being stimulated.
Open Banking is based on Open Data and Open API. Open Data is the principle of open access to data. Such data – whether it is currency exchange rates and ATM lists or depersonalized transaction data – are accessed by external developers. API (application programming interface) is a program interface that allows one computer program to “communicate” with another. The Open API, in turn, is a publicly available set of software tools that allow interaction between applications. Thanks to open interfaces, third-party developers can access the functionality and content of a particular resource and use it to partially integrate or create own applications.
The benefits of the Open API
Open interfaces in banking are often viewed with skepticism. The approach continues to evolve across all key financial markets – its potential benefits outweigh its possible disadvantages.
For clients (both individuals and legal entities) Open Banking means improvement of the quality of services. This can include, in particular, the following:
- More sophisticated and “user-friendly” interfaces, increasing the speed of all processes.
- Expansion of the product line and convenient search for advantageous offers, for example, deposits.
- Access to credit product expansion (by accelerating the analysis of transaction data and increasing transparency of borrower scoring).
- Personalization of product offerings (through deeper analysis of financial habits and behavior).
- Maintaining personal finances and analyzing accounts from different banks on the same platform.
Benefits of open interfaces for banks
Benefits of open interfaces are not so obvious at first glance. The customer has more options for selecting products and changing providers, so banks need to do more to stay competitive. Nevertheless, banks themselves can benefit from the implementation of the Open API:
- The digitalization of banking services may lead to an increase in revenue through the expansion of sales channels and new monetization options.
- Open Banking can improve customer engagement and allow companies to offer more additional services to customers.
- Open API will allow financial institutions to collect and analyze more information about customers and offer them personalized services, which can have a positive impact on revenue.
- Deeper scoring will allow banks to issue more loans at favorable rates, which may attract an additional audience.
- Once they have invested their resources in the development of the Open API, banks will be able to take advantage of innovative solutions without additional IT development costs.
Open API in the world – what is the situation in foreign markets?
The most famous approach to regulation in the field of Open Banking is the European one, which is based on the payment directive PSD2 (Payment Services Directive). The first version of the directive was adopted in 2007, and offered rules and guidelines for the effective development of payment services in the European Union. However, with the development of technology, PSD has become insufficient to guarantee consumer safety and at the same time to encourage innovation and competition.
U.S. law does not yet regulate the implementation of Open Banking. The only legislation that is relevant to this concept is Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 1033 is stating that financial institutions must provide certain financial and transactional information to users of a product or service upon request, but does not oblige banks to provide this information to third parties.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
First published in RUSBASE, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.
International fintech companies Cred and Responsive enter Nexi Open
Cred is a financial technology company based in Tel Aviv and operating in the United States and Western Europe. The...
BHV Partners plans to triple its portfolio and create an investment fund in 2021
BHV Partners, a venture builder specialized in the health sector is looking to invest in up to 15 companies next...
The Colombian Senate approves the legalization of recreational cannabis
The Colombian Senate approved the first initiative to regulate the use of cannabis by adults and paves the way for...
Endesa and Parkia join forces to install electric recharging points
Endesa hopes to close the year with 8,000 recharge points installed in Spain, both public and private, and multiply them...
Caldas Gold, the company that exploits the legendary Marmato gold mine
The company Caldas Gold will take the name Aris Gold, as recently announced, after initiating financing with investors, which will...
Featured6 days ago
Naturgy and Eni to share Union Fenosa Gas and seek to solve the dispute with Egypt
Featured4 days ago
How are ESG company news deciphered with Artificial Intelligence
Business6 days ago
How to identify customer tastes? Wine innovation may hold the key.
Africa6 days ago
A budget of 123.5 billion francs for construction work on Bugesera Airport