Open banking is the practice of permissive use of customer financial information digitally and securely to efficiently develop data that can be used to create new services and applications that are of interest to customers. In this article, Rory Brown will examine the potential of open banking to the virtual banking industry.
Banking customers use open banking with personal financial management tools that use bank account information to track spending, expenses, income, and financial goals. Open banking provides management tools for making payments, paying bills, and borrowing. Small businesses use open banking tools to automate bookkeeping and accounting tasks. The key to opening up opportunities for virtual banks to use open banking data effectively is developing the software and applications that will manage and integrate the mountain of obtained data in ways that will provide value to existing and prospective customers.
Virtual banks can create solutions for customer desires, both known and unknown. Customers want complete control over their data from all of their financial relationships. Business and individual customers want real-time access to transactional records integrated with market data and sourced to treasure and ledger management and planning systems. Of course, the more that technology advances, the more that customers will realize they want from their financial systems. Every financial institution that stays at the forefront of open banking app development will reap the benefits resulting from the market demands limited only by customers’ imaginations.
Multi-jurisdictional regulatory systems around the world currently limit the frontier of open banking. Although the basis of open banking is that customers should be able to utilize their own data in any way they prefer, recognition of the essential property rights to one’s personal financial information is a piecemeal process when dealing with multiple regulators. The EU and the UK have led the way in making customer financial data usable in a secure and standardized form. Asian markets have been introducing regulatory changes as well to allow open banking advances. The US Treasury Department and local regulators have taken a wait and see approach in many ways by following open banking developments, especially in the UK.
Many US banks have openly advocated against the stated desires of domestic corporations to have more open access to their financial information. Banks have been hesitant to give up control over their customers’ information, and the opportunity for virtual banks to move to relax regulations over open banking development is substantial. In addition to the obvious cost savings for customers compared to traditional banks, open banking systems can provide unpredictable levels of added value for customers desirous of more control over their information.
Virtual banks can use open banking technology to enhance customer experience and create entirely new markets for financial products and services. Imaginative bankers can connect customer preferences at the beginning of purchasing or financing decisions with current banking information to place customers quickly and efficiently with providers best suited to meet their needs. Virtual banks that learn how to use open banking to absorb and analyze data from customer and provider sources and then customize the entire experience for individual customers will have opportunities to serve customers directly and immediately.
About Rory Brown
Mr. Rory Brown has focused on financial technology and investment management for 30+ years. Rory Brown Co-Founded one of the world’s first Internet Banks and writes extensively about the industry.