Open Banking-Still young and ready to be explored?
Although Open Banking’s roots date back 40 years, when the first trial was run by a German post office bank in 1980, its popularity has increased in recent years, particularly after PSD2 went into effect in 2018.
Nowadays, Open Banking has the power to revolutionize the way we manage, transfer/move money. A practice that has been regulated by law in many countries, including Europe.
And it’s not just banks that are affected by the Open Banking regulation. Regulations have allowed third-party providers to be able to access bank data, which allows for a greater diversity of banking services, and competition between banks and other financial institutions, which might drive prices down and increase transparency.
With the ambition to create ever more personalized products, Open Banking has provided banks and fintech with a significant amount of data.
Indeed, Open banking is well known for its personalized financial services for its consumers. Convenience is considered more than security, and so consumers connect to various financial services and link different accounts to make it work for them.
If we look closely, a few trends seem to emerge:
1) More banks participating in the Open Banking initiative
As we know, not all banks are 100% fitting the DSP2 requirements. In 2022, we might see more banks joining the Open Banking initiative. The UK government has already announced that it will work with all major banks to help them implement Open Banking. We can also expect other countries to follow this trend and launch similar initiatives soon.
2) Banks will collaborate more with Fintech
Back in 2018, Anne Boden, CEO of the digital, mobile-only challenger Starling Bank Ltd., said traditional banks see Open Banking as an “inconvenience.”
In 2022, a report from Cornerstone Advisors stated that nine in ten financial institutions consider Fintechs partnerships to be valued and important for their business.
In just 4 years, we can see an upward growth for Fintech that unleash the full potential of Open Banking and its partnerships with financial institutions.
An article from Forbes says, on one hand, financial institutions have established infrastructure and credibility of regulations and trust of many million customers and on the other hand, we have Fintech which has the opportunity to be flexible and create solutions for niche markets and their freedom to be more innovative.
3) An obvious choice for consumers
Open Banking opens up data from your financial institution and can be shared with your consent with other companies that can guide you to better deals or budgeting insights using your finances. According to a paper published by Sifted-Open Banking varies across Europe, and they are adopted in different countries. The UK has more than 5 million users of the Open Banking system which you call front-runners by Yapily, World Bank.
That being said, Fintech uses the power of Open Banking to personalize and target various segments of customers, especially the niche market, to satisfy all types of customers’ needs and wants and make an obvious choice.
A study conducted by Yapily found the presence of Open Banking in European countries along with other factors. Many European countries have implemented Open Banking to a certain degree and are only advancing in the near future, while other countries are missing their scoring opportunity.
Below is a study from Algoan, explaining the percentage of people accepting the use of Open Banking between 2020 and 2021in France. There is a 23% rise in consumers opting for Open Banking within a year and steady users later the next year, proving that Open Banking is being pursued by many and growing rapidly.
In conclusion, Open Banking can help banks to improve their relationship with customers. It will enable them to gain a deeper understanding of their customers’ needs and provide them with more relevant offers. Open banking can also provide benefits for new customers by allowing them to manage their finances in a faster and more secure way.
Algoan is Europe’s leading Credit Scoring API, offering fintech, retailers, and financial institutions credit decision support tools. Based on open banking (the secure sharing of credit applicants’ bank data), Algoan’s solutions make it possible to halve the credit risk(1), increase the number of loan applicants accepted(2), cut processing costs and offer a seamless 100% digital process.
(1) ISO acceptance
(2) ISO risk
Algoan currently offers Credit scoring and Payment scoring solutions powered by Open Banking for our partners. If you have any questions, please contact us from the link below ↓