With open banking, consumers can manage their finances across multiple accounts and providers, while fintech companies can develop innovative products and services tailored to individual needs, ultimately driving financial inclusion and fostering a more dynamic and competitive financial ecosystem.
James Hickman is the chief commercial officer of Ecospend, a Trustly company which specialises in open banking technology and account-to-account payments. Here he delves into the significance of open banking in driving innovation for businesses and empowering consumers.
Open banking is poised to revolutionise the way we approach banking and payments, and will not only improve business efficiency, but will also optimise the consumer payment journey, making it easier, smoother and safer to make payments.
In November 2023, there was a record of 12.85 million open banking enabled payments, compared to 7.2 million payments in November 2022 – an increase of 78.5 per cent. But why is adoption happening at such a startling pace? And how can we expect it to change the way we bank?
Businesses take note, or risk falling behind
Let’s talk about how open banking is helping businesses. It is already stimulating innovation in the payments and broader financial services industries, and enabling businesses to provide services that wouldn’t have been possible under a decade ago.
With open banking, banks can seamlessly integrate with a wide array of third-party services, such as budgeting apps, investment platforms, and payment solutions. This creates a more dynamic ecosystem, driving the services that meet the evolving standards and needs of consumers.
For businesses making or receiving payments, open banking can also bring significant cost savings, something that is particularly beneficial at a time when businesses are having to deal with the challenge of inflation. By cutting out complexity, removing the middleman and lowering costs through increased efficiency, businesses have a huge amount to gain through implementing open banking-enabled solutions.
Perhaps most importantly, however, open banking can allow businesses to leverage access to a broader pool of financial data, and gain deeper insights into customer behaviour and preferences. This, in turn, allows for banks and other financial institutions to produce more targeted marketing strategies and personalised product offerings for the consumer, enhancing the overall satisfaction and loyalty of customers.
Five ways consumers can take advantage of the new technology
Open banking is already making the financial lives of consumers a whole lot easier, but we are still just at the tip of the iceberg when it comes to the benefits it offers individuals. At the most basic level, open banking solutions provide consumers with enhanced financial services solutions that are easier to use and more effective at helping them to manage their finances.
Take payments as an example. With customers taken straight to their bank account, open banking avoids the need for manual entry of card details, speeding up the process and reducing the risk of human error.
Traditionally, banking services have been siloed, with customers confined to the offerings of a single provider. However, with open banking, customers have the freedom to aggregate their financial information from multiple accounts and institutions in one place. This not only offers a more comprehensive view of their finances but also empowers them to make more informed decisions when it comes to managing their finances.
The benefits to consumers do not stop here, with the technology helping to expedite refund processes, and ensure quick settlements for unwanted or faulty purchases. Additionally, companies adopting open banking payments often provide discounts and incentives to encourage adoption, while over the longer term, it can transfer loyalty schemes by leveraging banking data to offer tailored deals, enhancing the shopping experience for individual customers.
Open banking contributes to a greater good
As open banking solutions continue to evolve, there is a growing number of people who are beginning to benefit from its use. One of the more exciting aspects of the new technology is its impact on financial inclusion, and its ability to drive social impact initiatives. By allowing organisations to access a vast range of data from consenting individual’s bank accounts, open banking can help provide eligibility for social support, assess lending affordability, boost regulatory compliance to reduce financial harm and unaffordable debt, and identify vulnerability.
Open banking can also be used to provide companies with a view on credit worthiness for those who do not have a credit footprint. For example, companies can use open banking to get a view of their customers’ transactional data which can be used instead of a traditional credit report.
As consumer expectations continue to shift, and technology improves at an increasing rate, businesses must adapt to stay competitive and relevant. Those that embrace the principles of open banking and leverage its capabilities stand to benefit immensely, while those that resist risk falling behind.
