What is Open Banking?
Open banking is changing the way how consumers can have greater control over their banking data around the world. It allows consumers to share their banking data with financial technology organizations and other third-party service providers to develop new products that satisfy their needs. Open banking is an emerging trend with the help of the Application Programming Interface(APIs). Banks will provide innovative products and more personalized services, particularly in providing better deals to consumers. For example, current account comparison services, personal finance management, and easier access to certain financial products.
Why do we need Open Banking?
On 1 July 2020, open banking is introduced in Australia. It follows the global movement with similar regulations applied in the United Kingdom. In this uncertain COVID-19 pandemic, customers no longer need to consider visiting a bank as an indispensable part of their life. Open banking makes life better for the clients, unlike traditional banks where customers need to ‘see the bank in person.’ The COVID-19 pandemic has been a driving force and increased the digital transformation for open banking to become more familiar for the public. According to Brett King, “Banking is no longer somewhere you go but something you do”. Open banking is definitely a new trend in the financial industry in the future. It not only reduces labor costs, but also reduces many complicated procedures that are unnecessary which is crucial to the improvement of the usability of financial products for customers.
The pros of Open Banking
- Give customers greater control over how the data is shared
Recently, there have been many cases of misusing data. People have started to pay attention to how our data is shared, with whom, for what purpose, and where.
- More personalized offers
Open banking provides customers a clear picture of their financial position when applying for new financial products.
- New financial business models
As new forms of digital technologies improve customers’ experiences, customers can access their bank account through mobile apps. In the near future, more advanced technologies will be incorporated into the interfaces of other banking and financial institutions. They can develop a number of new services and new products on their own to further improve customers’ experiences.
- More responsible lending
Open banking is expected to provide consumers a clearer picture as well as a better understanding of their overall financial position.
The cons of open banking
- Data security concern
A survey of Australian consumers’ perception of open banking undertook from Accenture found most people had data security concerns. They were unwilling to share their banking data to other financial institutions.
Open banking relies on technological innovations which means the younger generations are more likely to accept a online banking experience. However, the older generations may not be knowledgeable in terms of using mobile phone to access their bank account and financial data.
Open banking creates greater transparency and financial data in the banking industry. It gives customers more freedom to control over their banking data. On the other hand, it also raises data security issues which most people are concerned about it.
-Chor Wah (Thomas) Tang, Monash University