Banks, their customers, and a legion of third-party providers (TPPs) all can point to positive results from this fintech spin on banking.
Open banking involves the sharing of customer account data with TPPs, who are granted access through portals called application programming interfaces. Customers are not required to share their data, but they can authorize such sharing if it seems to be to their advantage to do so. Among the many services provided by TPPs are account information applications that perform budgeting and price comparisons. Ecommerce retailers like Amazon function as TPPs in providing payment initiation services.
Benefits to financial institutions
Banks benefit from open banking by expanding the services they can offer to customers. The new services that TPPs can provide through open banking help financial institutions offer a one-stop-shop and retain their existing customers in a highly competitive marketplace.
Open banking has spawned a new industry of TPPs, many of them fintech startups with highly specialized products geared to banking customers with particular profiles. Before the onset of open banking, these companies would have had no access to the financial data needed to design and market their products.
Benefits to customers
The primary benefit of open banking for customers is an increase in the number of service options available to them. The services offered by banks traditionally had been limited to those included in a customer’s account. The entry of TPPs into banking means that customers can access more personalized services than those offered by traditional banks.