Banking institutions around the world have continued to consider and embrace the innovative concept of open banking. Open banking is a system that provides a user with a network of financial institutions’ data through the use of application programming interfaces, better known as APIs. The use of APIs means that banking data will be available in real-time, providing consumers with better ways to conduct transactions, save, and invest their money. With consent from the consumer, service providers can also access reams of data such as transaction history and spending behavior. What are the advantages and disadvantages of this fairly new innovation?
- Open banking means open access to data for banks and lenders, but also a far clearer view of the options on offer to the end-user, or business owner.
- This concept comes with the option to aggregate a variety of financial information; helping consumers to understand patterns in their own spending, leading to better money management.
- Open banking comes with the benefit of choice for customers. Most banks offer similar services and the same set of service options. With open banking, customers can reap the benefit of choice as they have multiple options, or service providers to choose from. Therefore, you are not forced to use any specific software because it is bundled with your account.
- Open banking provides scope for development of new and innovative products and services by both established institutions and new entrants based on commonly accessible amalgamated information. This consequently leads to the reduction of costs for consumers.
Disadvantages of open banking
- Open banking comes with its own security concerns. With the rise in cyber-crime and software applications being readily available, customer risk remains high.
- Open banking has the ability to limit the ability of financial institutions to introduce unique services as amalgamated information can lead to service providers rolling out the same services at the same time.
The info provided above in a nutshell describes what open banking is all about.