How Financial Institutions Can Benefit From Open Banking?

In this article, you will learn about how financial institutions (FIs) can benefit from Open Banking APIs (Application Programming Interface) and why it’s so important for leaders in banks & FIs to embrace this new opportunity. 

TBVH – Every Open Banking story begins with the same introduction and this one is no different.

“The financial services landscape is changing rapidly…

Consumers expect a lot more from their banks, and they’re not afraid to engage with startups offering new ways of managing their money.” Yada Yada Yada..!

Just kidding. This one is not going to be a regular read. How, you ask?

Well, I know a lot of us still don’t completely understand the core of the Open Banking landscape. So, I thought, let’s introduce Open Banking one last time in a very simple way. And we are done. Sounds good?

Once you are done with, what is Open Banking? Who are the stakeholders in an Open Banking environment? I will follow up with “How Financial Institutions can benefit from Open Banking?”

Trust me. I have put a lot of time into understanding the core of Open Banking. To avoid you from scrolling multiple web pages and articles.

So, stop what you are doing and give me a few more minutes to explain Open Banking. And how your financial institution can benefit from Open Banking APIs.

Let’s get started with the very basic question that I come across a lot.

Can you explain to me Open Banking in a very simple sentence? Here you go..

What is Open Banking?

The concept of an open API has been around for a long time. Many IT departments in a financial institution already have systems that provide low-latency access to financial data through standard web APIs (Application Programming Interface).

What is API?

APIs, Application Programming Interfaces, are the software applications that can be used to interact with various (financial) services and systems.

However, only recently have Open Banking APIs become available and adopted widely. The main difference between Open Banking and traditional banking systems is that while the former allows third-party developers to access your financial data, the latter restricts this access to specific people and only allows them to view limited information.

In very simple terms, Open Banking is an umbrella term referring to the use of open technologies and APIs for financial data to flow between different financial services, products and platforms.

Open Banking is about enabling your customers to compare and buy financial services from different providers with a minimum of effort. This is by making information about financial services available through an API. For example, anybody can quickly get access to information about interest rates, fees, and other costs associated with particular investments or services.

Open Banking helps to increase competition, choice, transparency, and efficiency while reducing costs and improving service quality.

Fun Fact: At its core, Open Banking exists to benefit financial services consumers through the use of open-source technology

Who are the stakeholders in an Open Banking environment? 

There are three main stakeholders in the Open Banking industry.

First, we have the Banks or Financial Institutions — The gatekeepers. The good folks, protecting money and serving customers, and helping them with their money needs. Second, we have Fintech companies — Institutions responsible for providing exceptional banking experience by developing new-age financial products and services with the help of high-quality financial data facilitated by trusted third parties.

Finally, we have the Customers, the Open Banking Consumers— the people responsible for questioning the broken financial system, adapting and benefiting tailored products and services.

How can banks & financial institutions benefit from Open Banking APIs?

Open Banking has been something that the banks & financial institutions have feared. Will it affect their business? Our strength is in owning the customer data and building customer loyalty. How can a technology like Open Banking disrupt our business model? The questions kept pilling.

Well, everything has a positive and negative side. But if positives overkill negatives, then it is for the betterment. Open Banking APIs are a great opportunity for Financial Institutions (FIs) to embrace innovation and play an active role in the ever-evolving financial market.

Financial Institutions (FIs) have been traditionally closed systems. Only the bank could access their data, but now they can reveal their data to third parties by opting-in to Open Banking APIs.

Thanks to a set of strict Open Banking rules which aim to ensure the security and privacy of the customer’s data.

Here are 5 benefits of adopting to Open Banking APIs.

FIs Open Banking Benefit #1: Open Banking will change the customers’ online banking experience by convenience and personalization

Open Banking will bring a radical change to the online banking experience. It is a framework for building new functionalities, services and applications that enable consumers to access account data and make transactions using authorized third-party providers.

Open Banking allows consumers to search and apply for different financial products using their preferred bank account. A consumer can easily search for the best product that suits his/her needs. Along with convenience, this will also help in saving the consumer’s time and money.

The more personalized the products and services, the less your customers turn to your competitors. Plug and play the products that your customers want.

If you have questions or want to learn more about how Open Banking APIs have revolutionized the customer experience, reach out to us. We can help you with a superior customer experience that is effortless, responsive, and personalized.

FIs Open Banking Benefit #2: Open Banking helps in making decisions quicker and more accurate with advanced analytics capabilities

The future is here. Open Banking is revolutionizing how marketers, financial advisors, and credit card/loan providers interact with their customers.

Using Artificial Intelligence (AI), Open Banks can identify the right customers at the right time using historical data, behavioral marking, or simply analyzing crowdsourced data points.

Open Banking opens new doors for your business by giving you access to a more efficient data flow. This enables you to make informed decisions on interest rates, cash management, loans approvals, risk assessments, and more while lowering operational costs.

By collecting and managing valuable bank data in a single platform, Open Banking enables you to make better use of your capital resources, improve operational efficiency, and cross-sell your services. Check out our blog to learn, how building an Integration Center of Excellence (ICoE)can help you with your daily decision making.

Also, check out how we implemented a scientific solution to underwrite gold loans for a century old bank. 

FIs Open Banking Benefit #3: Increase your revenue by understanding how to monetize customer insights

Open Banking is a way of banking where your data is made available to other financial institutions or Fintech companies so they can customize their products and services tailored to your customers.

With Open Banking APIs, your data is more secure than other types of traditional collaborations and the flexibility to choose how you want your data to be used. Open Banking was initially developed in Europe but has now become more widely adopted across the globe.

By adopting this process, you can make money from your customers by offering them products they might not have known about otherwise. That said, making money from your customers is not just about making money from them – it’s also about helping them, and their families get what they need. It’s time you pay more attention to your customer data than your competitors.

FIs Open Banking Benefit #4: Reduce the costs of manually collecting financial insight

The cost of manual collection is high because it involves staff time to process the data and check its accuracy. It also takes time to analyze the information to determine whether it’s useful or not.

With Open Banking APIs, banks can calculate how much money you are losing on each customer account and send that data directly to the IT departments to make informed decisions. On how to spend their time and money trying to close accounts that are inefficient or unprofitable.

Open Banking is a shift from a manual, data-driven approach towards an automated and data-rich approach to running your financial business. The idea behind this is to provide decision-making power to businesses using data collected from your disparate systems (both online & offline systems) without having to be within physical walking distance of the information.

Read our blog here on “Data integration costs pulling you down?”

FIs Open Banking Benefit #5: Gain a competitive advantage over other banks and financial institutions

Open Banking APIs allow financial institutions to communicate with each other more easily and allow users to manage their accounts from a single platform. The basic idea is that there should be a way for people to easily access their financial information from any device, whether it’s connected to the internet or not.

The APIs can be used by any company that wants to offer products or services on a financial basis, whether a retail store or a payment institution such as PayPal.

That said, Open Banking APIs enable banks and financial institutions to offer specialized digital banking services in response to clients’ specific needs while improving the overall customer experience. Better options, satisfied customers. Make your customer experience your competitive advantage today.

Should you embrace Open Banking protocol?

Well, in my opinion, Open Banking APIs are a great opportunity for Financial Institutions (FIs) to embrace innovation and play an active role in the ever-evolving financial market.

FIs have been traditionally closed systems where only the bank itself could access their data. But now, by opting into Open Banking APIs, you can reveal your data to third parties, thanks to a set of strict rules which aim to ensure the security and privacy of the customer’s data.

Open Banking is a win-win proposition for all the three stakeholders – Bank, Fintechs & Customers.

If you are looking to gain a competitive advantage over other banks and financial institutions, embracing Open Banking APIs is a must. 

Although the concept initially set its sights on elevating the consumer banking experience, we at Zuci continuously explore the newer initiatives around Open Banking APIs. 

Schedule a 15-minute call to learn about our Open Banking initiatives.