What is Open Banking: How Will It Impact the Financial Industry?

Over the past five years, the adoption of Open Banking has grown at a rapid rate. As of February 2023, the UK reached 7 million Open Banking users and according to Statista, the number of open banking users is expected to grow 50% year-over-year to 2024.

Open Banking refers to a system where banks allow third-party financial service providers to access their customers' financial data through secure APIs (Application Programming Interfaces). This system is transforming the way the world thinks about banking and has numerous benefits for both B2B and B2C markets.

Innovation, Personalisation, and Inclusion for Consumers

Driving innovation and promoting competition in the financial industry, Open Banking allows third-party financial service providers to access customer data. Banks are then creating an ecosystem where new products and services can be developed which means this increased competition benefits consumers by providing more choices and better services at lower costs.

Open Banking promotes personalised financial services, with access to customer data, third-party financial service providers can develop tailored products that meet the specific needs of each individual customer. This means that customers can receive personalised financial advice and products or services that are better suited to their financial goals and objectives.

Open banking also promotes financial inclusion, access to data enables product and service development for underserved communities that may not have access to traditional banking services. This can include low-income individuals, small businesses, and individuals with below average credit history.

Lower Costs, Increased Efficiency, and Improved Access to Credit for Businesses

With Open Banking, businesses can access financial services more easily and at lower costs such as payment processing, cash management, and lending. By accessing these services through third-party financial service providers, businesses can reduce their reliance on traditional banks and gain more flexibility in their financial operations.

Increased efficiency is enabled by Open Banking’s ability to streamline financial operations. With access to real-time financial data, businesses can better manage their cash flow and make informed decisions about their finances. This can help to reduce the time and resources required to manage finances, allowing businesses to focus on their core operations.

By sharing their financial data with lenders, businesses have better access to credit as they can provide lenders with a more complete picture of their financial situation. This can help to increase their chances of being approved for credit and can help them to secure better rates and terms.

The rising trend of open banking has numerous benefits for both consumers and businesses. It promotes competition, innovation, personalised financial services, financial inclusion, transparency, and lower costs. As more financial institutions adopt open banking systems, we can expect to see continued growth and innovation in the financial industry.

Implementing Open Banking ⏰

Stay tuned for our upcoming post on Friday that explores why it is essential for Finance departments to embrace the implementation of Open Banking because of its transformative potential and is paving the way for a more connected and dynamic financial landscape.