Over the past few years, open banking has been the driving force behind significant innovations in the banking and finance industry. By promoting a more customer-focused approach and encouraging healthy competition, open banking is set to revolutionise the banking industry.
Read on to learn more about the rise of open banking, the challenges and opportunities facing open banking and the role of identity verification in this up-and-coming practice.
A quick overview of open banking
Open banking is quickly changing the financial services landscape across the globe. This banking practice gives banking customers the option to provide their personal and financial information with accredited third parties, like banks and other fintech companies. Through the use of application programming interfaces (APIs), financial institutions are able to create a type of open network of shareable data that can be used to tailor offerings based on customer’s behaviour and streamline future onboarding experiences.
Born out of technological advancements and regulatory changes in the banking industry, open banking is changing the way customers interact with financial services. Open banking is underpinned by several key principles that revolve around transparency, security, innovation and competition within the banking industry. By transforming the banking sector into a more customer-centric landscape and encouraging competition and innovation, open banking allows customers to have more control over their financial data while simultaneously providing access to a broad range of financial services.
As open banking gains momentum and regulatory frameworks take shape across the world, countries like the United States and Australia are poised to play significant roles in the global open banking landscape. Regulatory bodies in both the US and Australia have recognised the need to modernise their financial systems and promote competition. In recent years, attention has turned to open banking and how this practice can transform the banking industry. Plus, the US and Australia have well-developed technology ecosystems that are backed by strong data protection and security laws and regulations. And while the industry and government are exploring potential opportunities for open banking, digitally savvy consumers are also pushing for more personalised, seamless, convenient and accessible banking experiences.
The challenges currently facing open banking
While open banking offers a number of benefits to both financial services and customers alike, this practice doesn’t come without its fair share of challenges.
Regulatory and compliance issues
Remaining compliant with evolving regulatory requirements across global markets is an ongoing challenge, not to mention complex and costly. Ensuring that open banking platforms adhere to data protection and consumer rights laws is a continuous challenge, particularly when these rules and regulations are constantly evolving themselves.
Open banking providers must balance innovation with managing the security risks that come with handling customers’ personal and financial information. Maintaining robust data privacy and security measures is critical. As long as financial institutions and fintech companies are dealing with sensitive information there will always be concerns about data breaches, fraud and unauthorised access, making it tricky to build and maintain trust among consumers.
As technology continues to advance, open banking platforms must work together to ensure the interoperability of their platforms. This involves ensuring that they can effectively communicate and share data across different financial institutions and third-party providers can be technically challenging. Especially while maintaining high standards of data protection.
With this in mind collaboration between banks, fintech companies, regulators and other stakeholders is essential for the success of open banking. However, building and maintaining effective partnerships poses it’s own set of unique challenges.
Developing the necessary infrastructure and technical capabilities to support open banking, like robust APIs and data-sharing mechanisms, can be resource-intensive and time-consuming.
The open banking landscape is continuously evolving, with new entrants constantly coming to market and the non-stop evolution of consumer expectations. Open banking platforms must maintain their customer-centric approach by providing a seamless customer experience. More entrants to the market means greater choice for open banking users, so providing a quick and easy customer experience is key to attracting and retaining customers.
It’s essential that the players operating in the open banking environment address these challenges in order to realise their full potential and ensure that they continue to benefit consumers, businesses and the financial industry as a whole. Various stakeholders, including regulators, governments and technology providers must continue to actively work to overcome these challenges and foster a more secure, competitive and consumer-friendly financial ecosystem.
Opportunities for the open banking industry
And while there are several key challenges facing the financial industry, open banking also opens the door to a number of exciting opportunities for all involved.
New revenue streams
Open banking allows for the development of innovative financial products and services. Fintech companies and startups can develop applications and solutions that cater to specific customer needs, such as budgeting apps, investment platforms and personalised lending services. This can be leveraged to create novel financial products and services that could potentially bring in additional revenue for financial players.
Enhanced customer experiences
Open banking enables a more personalised and user-friendly experience for consumers. With their consent, customers can access a wide array of financial services tailored to their preferences and financial situations. From personalised financial advice to better credit assessments and more, open banking seeks to transform the customer experience within the financial space.
Collaboration over competition
While open banking drives innovation and competition between financial institutions and fintech companies, it also provides an opportunity for partnerships and collaborations. Traditional banks have the opportunity to collaborate with fintechs and third-party providers to offer a wider range of services. These partnerships can lead to innovative solutions and new revenue streams.
Not to mention, open banking also offers opportunities for companies to enter new markets, build partnerships and leverage customer data in innovative ways to drive revenue and growth.
These opportunities have the potential to transform the financial industry, empower consumers and drive economic growth.
The role of identity in open banking
Data sharing is a key aspect of open banking, which makes effective identity verification the backbone of building trust among customers. When it comes to identity verification, open banking platforms must overcome a number of challenges, like ensuring privacy and combating identity theft and fraud.
As an active current provider in Australia’s Consumer Data Right (CDR) ecosystem, Data Zoo has integrated into the CDR ecosystem with unrestricted level access, the highest level of all access models, allowing us to offer innovative and privacy-aware services to consumers. In particular, our approach to bank account verification streamlines the process, enhances security and delivers quick and accurate results to customers.
Data Zoo offers a secure, efficient and real-time bank account verification service, minimising risks associated with payments, overdrafts and fraud. With our single API for bank account verification, customers no longer have to wait days for their accounts to be verified. Businesses also benefit from faster and more accurate verification, helping to reduce processing time and fraud potential. With Data Zoo, account verification is simple and safe, as users authenticate directly with their banks using their online banking credentials, ensuring privacy and confidence in the process.
As open banking continues to evolve, it’s essential that businesses are prepared and prioritise effective identity solutions. Data Zoo’s identity verification (KYC) solution is the easiest way to verify global customers. Simplify your onboarding process, eliminate friction and convert more customers with our KYC solution that can securely identify customers from across the globe in 2 seconds. Plus, with flexible integration options you can choose the solution that’s right for you. Chat with one of our experts today to see how Data Zoo can work for you.