Open Finance and Open Banking have changed the way the fintech industry operates, providing new ways for Financial Institutions (FIs) to manage customer data and finances. As long as user consent is obtained first, it enables third-party fintechs to utilize relevant consumer data provided by financial institutions to expand the scope of their financial services.
In response to these developments, organizations are largely choosing to invest in new innovations and digital services. Our research shows that 43% of all large financial institutions say they have adopted Open Banking.
Within a short period of time, this sector has achieved strong consumer adoption where 40% of organizations state that they plan to invest in services provided through Open Finance and Banking. However, while this acceleration is impressive, there are more ways to build on this momentum.
Unlocking consumer understanding of Open Finance and Open Banking
Realistically, the average consumer does not understand the intricacies of Open Banking. Despite this, banks still play a crucial role in educating consumers on the benefits of utilising Open Banking technology to access products and services.
Never before have consumers experienced such a vast amount of flexibility and choice as challenger banks spearhead change in how consumers manage their finances. In order for consumers to experience the full range of offers, the financial sector must place a greater emphasis on educating the consumer.
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96% of organizations globally believe consumer adoption is crucial to the future of Open Banking. Without consumer understanding, it is a business-only technology and without this consumer buy-in, this sector will not evolve.
This should be viewed as an opportunity – a chance for FIs to develop trust with consumers, and show their commitment to improving customer experiences.
It is time for FIs to act fast and deliver on consumer education to ensure mass adoption.
Sharing data in a secure manner
There are some concerns around Open Banking and the idea that ‘sensitive’ and personal data is shared with third-party FIs. Threats of data breaches can leave consumers nervous and hurt the progress made in the adoption of this technology.
While these concerns are understandable, they do not accurately reflect the reality of the risks posed by Open Banking. A crucial aspect of the Open Banking experience are Application Programming Interfaces (APIs). APIs enable an efficient exchange of data between applications, services, and customers.
APIs allow back-end communication between banks and FIs without the need to share login details on the front-end. Acting as the backbone for Open Banking, APIs must be properly secured and protected to ensure sharing data such as codes or passwords are not revealed to anyone.
As we move towards a password-less future, businesses are considering adopting biometric or other authentication measures to guarantee security. With this in mind, we should see consumers trusting that their financial information is protected and safe. Without improved consumer awareness and understanding of the security systems currently in place, consumer hesitancy will continue and Open Banking will struggle to expand.
Creating open and confident consumers for open finance
The foundation of Open Banking is all about supporting consumer choice in how they choose to manage their finances, and according to the OBIE, five million people now use it in the UK. To facilitate this choice, the universal integration and the protection of APIs are necessary.
This means providing a service that offers a seamless exchange of information between brokers, banks and third party FIs to enhance customer experience. This, in turn, will help to facilitate a highly secure service that can deliver advanced insights and personalized advice to customers.
Through investing in technology that allows consumers to be more open and confident, Open Banking initiatives are springing up from across the globe to cater to consumer needs. In the US, legislative efforts to address privacy concerns associated with Open Banking – installing a framework similar to Europe – are in full swing and are set to continue.
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This push is also occurring in the APAC region, where there are several fintech startups making waves with exciting plans to further accelerate adoption.
Taking the final step
Legacy banks are ready to modernize and keep pace with the ongoing changes within financial services, while new challenger banks rapidly gain ground in this sector. Consumer adoption will be the key component to success and this requires education. Consumers must understand how and why their data is being used, and be reassured that it is secure and protected.
It is now up to banks to educate consumers on the developments in Open Finance and the benefits they offer. As millions grapple with the cost of living crisis, Open Banking could help millions of customers to find the right financial solution for them.