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What makes open banking a revolutionary change in the banking sector? An answer to this question lies in the total digitalization of the industry. Banking has remained a closed sector from time immemorial for exerting a monopoly on the majority of financial services. Today, the thriving fintech domain gives customers the right to choose an alternative. Thanks to the revised Payment Service Directive (PSD2) in Europe, all banks have to switch to the Open Banking model.
Let’s understand why open banking is considered a revolution in the fintech sector and how a customized fintech app solution can leverage this concept. But, before moving forward, let’s go through the circumstances that lead to the wide adoption of open banking.
It all started in the year 2018 when the EU countries got ready to incorporate the revised PSD2 into national law and force all banks to publish their APIs (Application Programming Interfaces). Simply put, it is the PSD2 directive that drives the future of open banking in the EU. It will open market barriers for European and other banks while changing the rules of the game completely.
- 94% of FinTech enterprises consider that open banking can enhance current services
- 84% of financial service providers are investing in open banking products
- 77% of EU banks plan to invest in open banking for their commercial customers
- 77% of financial institutions agree that open banking will bring radical changes
It is fair to mention that the COVID-19 pandemic has boosted open banking and soon customers will get more customized and innovative products and services using the open banking concept.
Here are the key changes open banking will bring in the fintech sector.
Seven Revolutionary Changes Open Banking will Bring in Fintech Sector
Though the real implications of Open Banking are yet to be understood fully, we can expect radical changes in the BFSI sector across the world. Here are some of the top changes Open Banking is expected to bring in the industry
Single Service for Multiple Accounts
AISPs (Account Information Service Providers) will act as aggregators of customer account data from different banks. As a result, customers or fintech app users can access various bank accounts in a single app.
The finance app development company can integrate a feature for providing access to different bank accounts. It enables app users to get rid of visiting every bank separately online to check their balance and transfer money from one account to the other. Open Banking also enables the customers to decide in which banks they keep money and what services to be used for finance management.
On one hand, this facility will increase the competition in the financial sector, and on the other hand, customers can get excellent services from all established players.
Easy and Instant Money Transfer
Digital payment solutions can leverage the benefits of open banking in facilitating easy, safe, and instant money transfers online. Open banking enables third-party players to initiate payment transactions using APIs.
It can make a radical change in the payment-processing industry and open the doors of new possibilities for integrating instant payments into the digital interface. It makes money transfer super easy for users.
Also, bill payment and utility payment will become easier, faster, and more convenient with Open Banking. Also, the Open Banking concept assists banks to reduce the number of intermediaries in the transaction chain thereby making online transactions highly secure.
Simple and User-friendly Onboarding
An AISOP provider can easily and instantly retrieve the user’s data to enhance the accessibility of financial services. There is no need for the user to provide identification while performing the enrollment procedure. Sharing access to primary financial account data is sufficient for onboarding of the users and they need not fill long forms.
It also facilitates users to migrate from one financial servicer to another and import their financial data anytime. As a result, users can easily choose the most convenient financial service method and provider. The Open Banking concept keeps the data about the customer’s financial history and transactions regardless of service providers selected by the users.
Simply put, while developing a FinTech application, the mobile app development company can give simple and easy onboarding for your customers using the Open Banking concept.
The PSD2 directive is aimed at enhancing the user’s security in digital payment solutions. Fintech developers can reduce the use of screen-scraping practice by getting access to bank APIs. There is no violation of the contract with banks anymore for users and full freedom of using the most convenient and innovative Fintech service.
All third-party service providers have to obtain licenses from the financial regulator. When it comes to banks, deposits can secure their liability, they can ensure the safety of the user’s confidential data by accomplishing the KYC (Know Your Customer) procedure.
Users can also determine the volume and content of financial information that they are ready to share with any third-party service provider. In a way, users can protect their sensitive data.
Simplification and easy user identification enable users to apply for financial products in just a few clicks. Open Banking platform can combine aggregators to enable them to give personalized offers to users.
Also, users can improve credit scores and change their financial habits while selecting any of the available options. Users can understand financial services clearly and choose the most suitable service to meet their needs.
Users can also learn what they are doing wrong and get personalized recommendations through a fintech app based on effective analysis of other similar cases.
In the future, Open Banking will enable third-party companies to use and process a lot of accumulated data using ML and big data. It will take the processes and experience to a new level while enhancing the value of financial services.
Personalized experience to users can be offered by analyzing the data related to their behavior patterns through implementing the Open Banking concept.
Best Financial Solution
It is easy to find the best offers for loans using the fintech app development solution. Aggregators can also offer the best offers while taking the user’s financial background and profile into account. These are outcomes of Open Banking. These days, many third-party vendors offer attractive loan offers in line with the government and private banks thanks to the Open Banking model.
Read More : How Much Does It Cost to Develop a FinTech App?
In the future, we can expect explosive growth in such services. While building a fintech app, you can integrate various user-friendly features to make it the best financial solution. It can become a part of the banking platform eventually and you can explore new opportunities for it.
Open Banking revolutionizes the entire BFSI sector by uniting banks and defragmenting the financial industry. As a result of the rise of a unified digital platform, finance app development companies can come up with robust, reliable, and highly convenient app solutions. In a nutshell, the Open Banking concept has made financial services more transparent and faster to enable customers to make better financial decisions.
Solution Analysts is one of the most reputed finance app development companies. Whether it is developing a fintech application or digital payment solution, our in-house team of experienced app developers is capable of serving fintech industries effectively.
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