What does Open Banking means?
Have you heard of the term "open banking"? Know that you already benefit from it. This article will tell you what is it and if you should worry about it or not.
by Julia Bermudez
Understanding the concept of open banking: should you trust it?
What do you think when you hear about open banking? A bank with no door? Or opening your bank account so everyone can see inside of it?
Joking apart, it does not refer to any invasion of your privacy. Actually, it is bringing countless benefits to everyone who uses banking services. You’ve probably already benefited, even if you don’t know what it means.
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Gone are the days when banks were the only institutions in which we could store and manage our money. Or pay bills, make transfers, acquire credit cards and loans and other types of banking transactions. If you’d like to understand how open banking is impacting your finances, keep reading this article to learn more about it.
Open Banking: understand how it works
With the rise of online and digital banks and other financial products, many people wonder how they work your money if they’re not a bank. Traditional banks carry the confidence of being institutions recognized and supported by the government, with specific regulations and solid legal structures.
So when online banking emerged, many people found themselves suspicious about its legitimacy. After all, it is a great responsibility to entrust your money to an institution. We don’t even like to imagine the damage that a scam can do to a family’s life. Losing all of your savings can cause problems that will cost the work of several generations to recover.
That’s where open banking brings the solution. It is an agreement between banks and fintechs to use the solid structure of banks with a more modern approach through APIs – application programming interfaces. With the use of software, digital ecosystems are created to transfer information from one institution to another.
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Is it good? Learn benefits and disadvantages you may find
Open banking has opened not just the bank system, but a new horizon of possibilities. But through the same open door where benefits come in, the disadvantages can also find their ways to sneak in.
However, if the cons were more significant than the pros, this technology would not exist anymore. But it is not just a reality but is giving us many benefits, with no loss in security. Let’s highlight some benefits and some disadvantages of open banking.
Benefits of open banking
- Stimulates broad competition, as banks are not the only ones allowed to provide such services anymore.
- Generates new services and products for the public, improving usability and making our daily lives easier.
- Open banking obligates banks to be more transparent about data storage and transmission and gives us more eyes to take care of this delicate system.
- Security and safety have to be on point and stronger than ever. Both to protect the data and to convince the public that they can trust this certain service or product.
- More people now have access to credit lines, as fintechs find new ways to provide it with no overwhelming requirements.
- Account agregation is one of the most useful applications of these technologies, as you are able to manage several accounts from different providers in the same app.
- Open banking leads to investment in high-safety technology, but it can also lead to more gaps where hackers and thieves can sneak in and steal private information and money.
- Many people tend to give less credibility to open banking, fearing for their security. This is especially prominent among older people, while younger generations of digital natives are more open to new technologies and like to modernize their daily services. Let’s say that the younger generation of adults doesn’t care so much about privacy if their lives become easier and more practical, like making a money transfer with just one click.
- A more conservative analysis of the psychological aspect of trust and brand loyalty can see digitalization as negative. As new fintechs start to replace traditional banks, people may lack the in-person service and closest relation to managers and other integrants of bank staff. But just like the privacy problem, people under 30 years old are already used to digital and online services and how to figure things out by them selfs through apps and websites. They see as positive that there is no need that another person has to intervene in something that could be easily solved through a button in the app.
What is open banking APIs?
Application programming interfaces are essential to make open banking sustainable. These applications are developed by fintechs and have high standards to be approved by bank partners.
They’re used to share data between banks and their partners, such as online accounts and other mobile apps and websites that would like to include financial transactions among their services.
Which banks use open banking?
According to some websites that track which banks are using open banking, there are around 182 banks and account providers that use it. Almost every bank in the U.S. knows the relevance of improving APIs and using it to provide better financial services to their customers.
Some waves we just can not stop. That’s the case with open banking. Financial institutions have two options: to get drowned by then or to learn how to drop and surf.
So, as clients crave better and modern ways to manage their own money, banks and credit unions get to roll up their sleeves and work on better banking solutions.
The following list has some examples of banks and credit providers that use open banking:
- Citi Bank
- American Express
- Bank of America
- Capital One
- JP Morgan Chase & CO
- Sutton Bank
- Wells Fargo
- and many others.
And if you’d like to learn more about finances and technology, read the following post to learn about security tokens and utility tokens.
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About the author / Julia Bermudez
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