In previous years, a small group of banks held the data of the majority of customers, so it was difficult for new, innovative financial services providers to break into the market. More recently, the emergence of open banking has dramatically changed the way people and businesses manage their money.
This puts the power of financial data back in the users’ hands to ensure it’s used for their own benefit. open banking apps are created from third-party developers using open application programming interfaces (APIs) to build applications and services around existing financial institutions. For example, apps like Venmo and SoFi, which allow users to easily transfer funds, are examples of the value that open banking can bring to consumers.
Open banking provides easier access to loans for businesses and the ability for consumers and businesses to manage money more quickly and conveniently. It also creates new opportunities for financial technology companies and startups that have struggled to match the size and scale of traditional banks. In 2021, we will see significant international growth in the open banking industry as it democratizes financial services.
Now, Gen Z has grown up using mobile apps rather than traditional banks to manage personal finances and transfer substantial amounts of money. As a result, we’ll see an influx of software companies being founded with the purpose of creating new methods for digital-first consumers to do banking. To keep up with the growing consumer demand for easy-to-use digital banking solutions, banks are now embarking on the same journey. In the U.S., the Financial Data Exchange (FDX) built a consortium of providers around a common standard for secure access to financial data.
With the increased ability for consumers to share their banking data with any trusted provider in the FDX or open banking ecosystems, the opportunity for smaller financial companies to offer competitive services has skyrocketed. This has started a gold rush for app developers working to build what will become the new, go-to open banking platforms.
New technology that involves sharing data across different platforms can introduce a risk of data breaches, but well-built APIs can mitigate security risks. It’s essential that regulations, well-thought-out standards, and secure technology are harnessed to maximize the benefits of open banking. Dynamic authorization not only solves the security challenges of open banking, but also assesses the context of each data transaction for better protection and usability. This results in better security and better customer experience as more consumers expect digital-first banking experiences.
