What is Open Banking?

July 27, 2021
Makayla Santino

 Fintech is rapidly developing and innovating new products regularly. Open banking is one of these innovations that anyone interested in the industry should understand.

Open banking is an approach to payments that allows for immediate transactions between two separate bank accounts. This can occur when all customers involved have complete control over their payments and have given consent for their information to be shared with third parties. The third parties can include fintech companies, messaging apps, and online businesses. Once consent is given, the tech is given access to customer data and either information analysis or transaction initiation can begin. 

Online banking has become a big topic throughout Europe due to its new security principles. Open banking started to be adopted globally because it promotes customer empowerment and security. Banks have been around for hundreds of years leading to them being viewed as the most trustworthy and reliable financial institution. The banks will check their data, keep it safe, and are overall reliable in protecting sensitive material. 

Banks did not have to share their customer information outside third parties, but this is changing. As an example of this, the newly introduced PSD2 regulation obligates banks to share customer information when it has the customers’ consent and utilizes protected authorization measures. 

A circumstance when open banking would be used is to verify a customer’s identity. Some government and other official agencies will require an identity check through a bank. In this situation, the bank would verify the customer’s identity with a service developed by a third party provider. 

Both consumers and businesses can benefit from open banking. Customers will find that they have increased control over their personal data and assets while also gaining financial literacy. Open banking is beneficial to online businesses because it ensures that their customers feel comfortable and trustworthy of the transaction occurring.

When the customer sees their own bank logo on a merchant’s site, they will view the seller as a reliable place of business that conducts dependable transactions. Rather than going to each individual bank to make separate agreements, open banking provides one platform that is much easier to handle. Open banking technology is also advantageous to sellers because it significantly reduces and removes the chance of chargebacks. 

Open banking is a technology that any business that receives payments online should research. It allows for an easier and more reliable transaction experience for both customers and the merchant that will attract new customers.

 

 

Reference:

Ottevanger, Audrey. “Open Banking: What Do Business Leaders Need To Know?.” Forbes, 27 July 2021, https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2021/07/27/open-banking-what-do-business-leaders-need-to-know/?sh=2d4f9b9b204e.

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