Susan Geist
25 April 2022 by Susan Geist
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​As technology evolves, so does the way we manage our money. Open Banking is a growing sector within the banking industry and could be set to change how we manage our finances completely, but how much do people know about it? In this article, we explore what Open Banking means, how it differs from traditional banking and what we can expect in the future…

What is Open Banking?

Open Banking is the practice of allowing third-party financial service providers open and secure access to customers’ banking and financial data through application programming interfaces (APIs). Open access is only granted once a customer has given their consent for data to be shared.

The main aims of Open Banking are; to provide consumers with more control over their finances, offer faster and more accessible banking processes via third-party platforms, and allow financial institutions to provide more tailored services to their customers.

How does Open Banking differ from traditional banking?

It is generally felt that traditional banking methods have stunted innovation in the financial sector as customer data is usually stored but not analysed. Open Banking allows banks to understand more about their customers to identify better products and services that will benefit them.

Unlike traditional banking, where the bank holds client data and offers customers a standard set of products, Open Banking creates a network or ‘ecosystem’ where the individual’s needs are at the centre of the process. Data about how customers save, borrow and transact can be shared quickly and easily between financial institutions, technical platforms and non-banking third parties. These institutions can then provide a wide range of tailored products and services for managing and moving money to provide the best option for the individual.

Why is Open Banking becoming so popular?

Research shows that in 2020, 24.7 million individuals worldwide used Open Banking services, with forecasted figures suggesting this could reach 132 million users by 2024, so clearly, open banking is gaining momentum.

And you can see why when you consider that products and services can be personalised to the end-user. Open Banking provides greater customer choice and encourages banks to be competitive, which benefits the consumer. For instance, it’s pretty unlikely that anyone would want to pay higher interest rates or expensive overdraft charges if you can shop around.

In addition, Open Banking also offers the benefit of consolidating account information, allowing customers to monitor multiple bank accounts via one app. This gives people a better understanding of their finances, enabling individuals to manage their money more effectively and make more informed decisions.

Open Banking can assist with global financial activities via payment platforms, such as streamlining the trading of shares and cryptocurrency and increasing the ease and speed of domestic payments, foreign exchange and international transactions. Open Banking via payment platforms can also simplify opening new overseas bank accounts, especially in countries where there may be issues around residency regulations when using traditional banking methods.

Financial institutions are also beginning to enjoy some benefits of Open Banking, especially challenger banks and fintech organisations that are less familiar to consumers. Open Banking provides them with a platform to showcase their innovative products and services. However, even the big banks are seeing some advantages whereby consolidated data on Open Banking apps can reduce the number of back-office staff needed to manage customer accounts and record individual transactions.

What does the future hold for Open Banking?

The evidence would suggest that the future of Open Banking is a bright one. Just three weeks ago, the UK government and UK regulators renewed their support for growth in the sector, announcing plans to establish a Joint Regulatory Oversight Committee to oversee the development of Open Banking. The government also estimates that by September 202360% of the UK population will be using Open Banking payments. 

As the sector grows and companies expand their Open Banking services, recruiters report a rise in vacancies in Open Banking and fintech-related jobs. The market is now buoyant, offering many opportunities for professionals in the field.

In other developments, Open Banking could threaten credit card companies. With Open Banking making it increasingly easy to carry out A2A (account to account) digital payments without the need for cards, credit cards could gradually become a thing of the past. However, there is a good chance that credit card companies will find a way to reposition themselves to be part of the process rather than disappear completely.  

It’s not just credit cards that could become obsolete. Open Banking also facilitates a new real-time digital payment method called ‘Request to Pay’. This is a way for bills to be settled between individuals or businesses using a real-time messaging service, usually via a banking or fintech app, which allows billers to request payment instantly and electronically. When a request is received, customers can pay in full, pay in part, ask for more time, communicate with the biller, or decline to pay. The new payment method can help prevent fraud and money laundering and potentially replace credit cards, invoices, and direct debits; it has been gaining traction since its launch in May 2020.

Moreover, it could be that the future of Open Banking is the future of all banking, with high street banks, including HSBC, Lloyds and Citibank, amongst others, now offering Open Banking options for customers. The big banks themselves are keen to get on board with Open Banking rather than resist the changes and get left behind. 

Open Banking has a long way to go before it reaches its full potential. It will be exciting to see how it can improve financial services for institutions and customers alike and perhaps change how we manage our money forever.

If you’re looking for a new challenge in the banking or tech industry or if you want to recruit the best candidates for your team, talk to our expert recruiters today at McGregor Boyall.