Thursday, 7 October 2021, 5 minute read
In recent years, the forever-changing digital world has developed a significant opportunity for financial service organisations. This important and innovative creation is called open banking. Due to its new rise in popularity, there’s a lot of misunderstanding based on the topic. If you want to become knowledgeable on open banking, see the below:
What is open banking?
We understand a new financial service can seem somewhat questionable at times. This is because we’re used to a selection of hierarchy banks, such as Barclays, Santander, and HSBC, providing us with all our private banking data. Needless to say, this dramatically restricts your financial freedom, and that’s why open banking came into force in 2018. But, what is it?
Open banking is the next stage in digital banking. It is a more connected financial eco-system that allows third-party providers to improve functionality, competition and security for users.
If someone holds several bank accounts across different providers, say Barclays, Santander, and HSBC, a third-party financial management service or application could provide the owner with a complete overview of all accounts in one place. It allows the user to manage the money much more efficiently and enhances the number of banks they can consider using. It's important to note that only regulated companies can operate in this space and even then, users must give their express consent in order for these companies to access their data. They all operate with the same level of diligence and security as the banks they work with to ensure users are protected.
Open banking is just a new and modernised financial management service that increases the customer’s convenience. To better understand open banking and open banking companies, read the following problems it can solve in today’s financial industry.
What problems can open banking solve?
Open banking can solve various challenges that “normal” banking solutions face. Some are much more substantial than others, but here are the three primary problems that open banking can solve:
Security and trust
According to this 2019 Edelman Trust Barometer study, financial services are the least trusted industry. This isn’t surprising, yet highly alarming, and open banking can help bring trust back into the sector. With open banking, the user is in control. They choose which data they share, how long they wish to share specific data for and have complete power to change these settings whenever they want. This is very unlike most “normal” financial services, as you usually have to agree to specific terms and conditions outlined by the organisation. Open banking follows the highest security, compliance and privacy standards, ensuring your data is encrypted and shared only when necessary.
Money is precious in life and having control of this asset is essential. With open banking, you can access all bank accounts under a service or application. Employees, business owners, or retired individuals can benefit from this as they can securely transfer, deposit, or overview their accounts from anywhere in the world.
Reduced overdraft fees
With increased control and the introduction of sweeping, the chances of users going into their overdraft and suffering costly interest charges is significantly reduced. For the many with multiple bank accounts, this is a common issue.
Let's say a customer has two accounts, account 1 has £100 and account 2 has £5,000. The customer has a charge for £200 come out of account 1 and are now in their overdraft. With the new sweeping mechanism introduced with open banking they would have money moved from account 2 into account 1 to ensure they maintain a positive balance and avoid overdraft charges (providing they've consented to it).
Collecting and making payments is complicated. Card payments are expensive and prone to fraud and chargebacks. Bank transfers are slow to settle and prone to human error and inertia. Open banking is fast, secure, cheap, and not subject to chargebacks or human error.
Open banking can collect data in real-time. No more outdated or fake data. Users will not send screenshots of their bank accounts anymore. Instead, they will log into their bank account to pull the data, reducing the risk of fraud and increasing granularity for risk management and decision-making.
What are the main benefits of open banking?
The problems that open banking can solve are superb, and it also offers an impressive number of benefits to both our lives and the national economy. Depending on your financial skills, knowledge, and engagement, some may benefit from this more than others. Here’s what you need to know about open banking benefits:
Whether you work for an employer, own a business, or are retired, spending time manually checking, depositing, and transferring money can be tiresome. Open banking can solve this issue by providing a “central hub” for all banking needs.
The customer selects the banking data they’d like to share, grant the API access to their selected information, and have access to all their bank accounts under a single mobile application anywhere in the world. Including this, specific third-party applications will provide financial advice based on your transactions, making budgeting much more manageable.
Including the above, it’s also diversifying our financial market. Instead of the UK financial industry being controlled by a few organisations (Barclays, Santander, and HSBC), small start-up companies are now developing new and creative ways to enhance the way we bank.
How Crezco is using open banking to help you?
Crezco helps thousands of companies to pay and get paid with an instant, free, and frictionless payment solution. We provide account-to-account payments, no cards involved.
Benefits for businesses:
Easier access to capital
Collect and make payments online
Accelerate customer onboarding
Improve forecasting and cash flow
Benefits for consumers:
Simplify finance management
Make payments quickly
Provide proof of income
Faster loan decisions
Benefits for banks:
Improve customer engagement
A step in the future
From initiating payments, managing finances or investing easier, open banking is allowing greater functionality and control for customers, creating jobs, economic growth and huge strides in technology. We're at the beginning of the adoption curve of this new technology with at least a decade of new innovation ahead.