Open Banking and Open X
Open Banking allows third-party financial service providers with access to your financial information – consumer banking, transaction, and other financial data. This is managed through the use of application programming interfaces (APIs) and allows you to avail a range of financial services with much greater ease. Use of Open Banking poses huge benefits for consumers as new services and offerings are made available, while also creating a risk against privacy and data protection.
Third party providers using data obtained through these APIs are usually FinTech startups and and other online vendors. Data gathered can be used to compare or analyse a consumer’s transaction history, create a credit risk profile, or even help send and receive payments. Third-party financial management tools such as Mint, for example, use your banking information to analyse and summarise your spending and help you remain on track to meet your goals. Banks can also be the users of Open Banking, such as Barclays, which claims to be the first UK bank enabling account aggregation in its app, allowing customers to view all their bank accounts in one window.
As banks struggle with the idea of losing control, and FinTechs push for greater access, the new phase of innovation, “Open X” is ready to take over the financial sector.
According to the World Fintech Report, Open X will leapfrog past the Open Banking phase, driven by four fundamental shifts:
- A move away from a focus on products to an emphasis on customer experience
- The evolution of data as the critical asset
- A shift from prioritising ownership to facilitating shared access
- Emphasis on partnering to innovate instead of buying or building new solutions
According to the report, market players are ready to move to the next phase, which will require much deeper collaboration and integration between financial service providers, and will create an “integrated marketplace, with specialised roles for each player that will enable a seamless exchange of data and services, improving customer experience, and expediting product innovation”.
As consumers become more demanding, banks can no longer expect to be the sole solution providers for all their consumer’s needs. Instead, they must think of themselves as a partner working in a shared marketplace, with the aim to make life easy for their consumers. In this new world, standardisation of APIs will be the key, and those that invest in these initiatives today will be well poised to monetise their investments in the future, while retaining leadership and control. Players will need to take on specialised roles, becoming suppliers, aggregators, or orchestrators, while consumers can expect new innovative solutions, backed with a more a more seamless experience.
While APIs require consumers to explicitly provide permission to access their financial data, through secure systems, risks around privacy remain. Despite layers of protection in place, data privacy and protection are, and will remain the biggest hurdle for Open Banking, as well as for Open X. And with the increasing demands around data sharing by Open X, banks and FinTechs have a tough journey ahead.