What is open banking?
A system that provides a user with a network of financial institutions’ data through the use of application programming interfaces, better known as APIs. The Open Banking Standard defines how financial data should be created, shared and accessed. By relying on networks instead of centralization, open banking helps financial services customers to securely share their financial data with other financial institutions. Benefits include more easily transferring funds and comparing product offerings to create a banking experience that best meets each user’s needs in the most cost-effective way.
Also known as Open Bank Data.
Open Banking services launch for UK consumers on 13 January, but what is it, what needs to happen for it to be a reality and why should you care?
The UK’s open banking regulations came into effect on 13 January, bringing changes to the sector that could drastically transform financial services.
Open banking forces UK banks to open up their data via a set of secure application programming interfaces (APIs). This will force banks to shift from being one-stop-shops for financial services to open platforms where consumers can start to embrace a more modular approach to banking by giving verified third-parties direct access to this data.
The Competition and Markets Authority (CMA) has turned the concept into a formal requirement for the nine largest current account providers in the UK with the launch of the Open Banking initiative.
Alasdair Smith, chairman of the UK’s retail banking investigation, said: “Open banking will make a transformational change to banking for personal customers and small businesses.”
“For the first time, innovative and secure apps will provide personalized services and information to cover all financial needs in one place, and make it easy for people to find out what bank account is best for them.”
Open Banking in The U.S.
In the United States, fintech companies like Mint pioneered the concept of independent financial apps that aggregate various bank accounts and credit cards to provide consumers with a 360-degree financial view and the ability to compare various banking products. Consumers were eager to try a service that would help them better understand their finances; 18 months after Mint’s launch there were 4,000 to 7,000 new users every day. However, without an initiative like the Open Banking Standard, these finance innovators are vulnerable to the aims of established banks.
Some U.S. banks like J.P. Morgan and Wells Fargo have become hesitant to share banking data for reasons including overloading data servers, but their reluctance to cooperate with the banking community can also be seen as a strategic move. An initiative like the Open Banking Standard would help alleviate these issues and improve collaboration and fair competition within the banking industry.
open-banking-becomes-reality-in-uk | Open-banking-standard-api-regulation-fintech, | open-banking.asp
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