Open Banking – Generating Revenue without compromising security
Open banking is a concept and technology developed by the Bank of England to encash on the dormant banking information of customers. The information-sharing empowered by the Payment Service Directive 2, enables vendors in providing a concise view of customer banking information to other partner banks and vice versa, generating income and business to the institutions involved by providing tailored services to the customers. In order to do so, the banks should expose their infrastructure to their authorized third parties’ APIs. This act opens up the threat surface and increases operational risks of the involved financial organizations flagging the need for secure integration, design and development practices and post-development security conformance assessments.
Open banking technology provides customers with a reliable approach to share the financial information securely through an electronic medium to authorized third-party service providers, to offer tailor-made financial services. The application program interface (APIs) allows third-party financial service providers to access customer’s banking business data. and other transactions. The application program interface supports by supporting the development of applications and services for the said information sharing and subsequent tailored service delivery. Open banking technology permits the networking of data and accounts across organizations, to benefit financial organizations, customers, and third-party services providers.
The open banking technology uses Personal Financial Management (PFM) tools to track expenditures and financial information, with the help of the customer’s bank account details. Customers, by sharing their account details and transaction history, can translate this information into tailored services such as Allowing customers to control their accounts will help them to yield better rates on credit cards, mortgages, and overdrafts and the likes easily.
The open banking technology can reshape the consumer experience and competitive landscape of the banking and other financial organizations. The sharing of customer data with the help of the open banking system unfolds the way to both promising gains and severe risks. Open banking systems are primarily employed by online financial service vendors and tech start-ups. End-users are allowed to use open banking technology, once they provide permissions consent to the bank to access their accounts send their banking data to such vendors.
The open banking technologies relay on networks rather than centralization, which makes them the driving force of innovation in banking and financial organizations. The Application program interface (API) benefits consumers with various financial services. Open banking API promotes the process of switching from one bank’s account to another bank’s account seamlessly. By accessing Application program interface (APIs) helps to view the consumer’s transaction history, the API to identify the best finical service and products, such as new saving accounts or different credit cards, that are suitable for the customer.
Revised Payment Services Directive (PSD2)
Revised Payment Service Directive (PSD2) is a payment service that allows organizations and consumers to use third-party consultants to manage their finances. The PSD2 changes the path of online payments and information that are displayed during transactions. The PSD2 will break out the cartel control of the banks and other financial organizations on their customers. They grant permission to the merchants to access the user bank account data with the user’s or customer’s consent. So, the merchants can retrieve the user data from banks. PSD2 allows the merchants to make payment for users without redirecting the customers to other transaction services.
PSD2 provides all the accounting data in one place for the customers with more than one bank account. The online payments in PSD2 require stronger identity checks than standard financial transactions. The PSD2 supports a legislative authority for the vast open data and also increases the open data interchange between the banking organizations. The third-party provider is allowed to intermediate and dis-intermediate the relationship of customers and financial organizations in the revised payment service directive (PSD2).
PSD2 uses the concept of open banking technology that practices open APIs, which allows the developers to build applications and services based on the financial service industries. The PSD2 enables the account authorized Account Information Service Providers (AISPs) when they access the partner bank accounts, which allows them to provide them with more functionality and to expand their services. The AISPs offers services such as investment advice, personal financial management, etc, based on customer’s income and expenditures, or personal financial management. The PSD2 refers to the stronger authentication process, such as dual authentications during the customer identity check.
Benefits of using open banking technology
Useful tools are built: application developers are at ease, With the help of open Application Program interface (APIs), it is easier for application developers to build customer-centric tools. Open APIs allows the organizations to provide services crafting and support to end customers, with making use of the control visibility of the customer’s spending. Public Personal Financial Management (PFM) tools are used by the organizations to predict the development in the customer’s account or suggest the name of products to save the end-users money by showcasing them a better deal.
Streamlined lending: Open banking technology enables a third-party service provider to provide a streamlined view of the best deals on loans provided by partner banks by analysing the transaction, past borrowing, repayment mode and other account information of the customer. Open banking technology provides a natural means to arrange a loan when compared with the manual collection of information from various sources and then present it to the potential lenders. The lenders can quickly grab the document required in open banking technology. The banking staffs have can access to the customers saving and checking accounts and can download transactions for making alternative lending decisions.
Automated accounting: storing data in open banking technology is more accessible and less expensive. The integrated systems are updated when customers receive or send payments. Sometimes the open banking system provides a reduction in manual tax-preparation tasks.
Fight scam and waste: the conventional banking systems and third-party applications can scan through the transactions. But with Artificial Intelligence and crowd-sourced information, banking systems provide data that are not required. So, the Open Banking Technology offers an accessible way to use the data, and it provides visibility for more accounts.
Comfortable to build money management tools Assistance: Open banking technologies used in banks and other financial organization compares the customer expenditure of each month with their previous month expenditure and displays it to the end-users. Personal loan and car loan data are provided by the open banking system, along with the daily expenditure details. With all the information, the customers would gain a better understanding of their financial situations.
Supports the customer’s when required: The open banking system provides the opportunity for banks to connect with their customers. Sharing the data under open banking systems provides banking or and financial system services with the ability to understand the customer’s’ financial situations. It helps to identify whether the customers are in any financial difficulties. The credit card scores are used as a trigger to prompt more detailed information about the end-users income and expenditure. The open banking system provides the opportunity for banks to connect with their customers.