Open banking is a banking practice that gives third-party financial service providers access to consumer banking, transactional and other financial data through the use of application programming interfaces (APIs). This enables the networking of accounts and data across institutions for use by consumers, financial institutions, and third-party service providers. Poised to reshape the banking industry, open banking interfaces facilitate greater competition and create new business opportunities.
According to a global survey carried out by Finastra earlier this year, 86% of the 774 banks surveyed are looking to adopt open banking in the next 12 months. When open banking technologies make their way into the business banking market, new use cases emerge.
For example, when companies large and small are able to access their bank account data in real-time it is far easier for the CFO and other financial decision makers to manage money more effectively. This is especially true as more and more businesses use several different bank accounts and have to manage multiple bank accounts manually, at the same time. With open banking, bank account data can be integrated into back-office platforms so that finance teams can easily consolidate bank account data and provide an accurate overview of the organisation’s financial situation, with up-to-date account balances.
Fintechs, banks shake hands
In the past, it was banks versus fintechs but open banking brings together ecosystems that overcome this old rivalry to the benefit of both.
“There used to be an adversarial view of banks vs fintechs, but we’re now seeing increasing collaboration within open banking ecosystems,” Rudy Kawmi, head of retail banking sales across Africa at Finastra, said during an ITWeb webinar at the end of October.
What we need to remember is that there is always a lot of hype around transformative trends and sometimes this hype can exaggerate expectations, he added. With open banking gaining momentum around the world, which delivers a certain level of agility, it’s not just about how big you are as a bank but rather how quickly you can adapt and respond to changes in the market. When you combine what fintechs bring to the table with the information, resources, scale and customer trust enjoyed by established banks, these collaborations can be hugely positive.
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