Unprecedented change leads to alternative banking
The financial world has faced unprecedented changes as it seems many consumers have rejected traditional banking models in favour of alternative options. The rise of FinTech and InsurTech have helped to respond to this negative disruption, and banks and other financial organisations are attempting rebuild trust by altering their business strategies. One incredibly promising approach is open banking. The concept initially sprung from new regulations and aims to increase trust in finance, encourage personalisation via data and improve customer experience. As well as an official strategy, open banking is also a fitting summary of the changes impacting established financial processes as transparency and accessibility replace greed and mistrust.
The underlying technology behind open banking is open APIs (application programming interfaces). They are used to share secure information with selected third parties, and allow for seamless verification between online accounts. At the moment, banking data is not easy to share. However, open banking encourages data accessibility, combining regulation with innovation to fuel healthy competition between financial companies. Open APIs don’t mean that all data becomes accessible to everyone – it simply means that the technology itself is open. In 2015, an Open Banking Standard was established at the request of HM Treasury to explore the impact of open banking on all kinds of transactions. Forward looking banks have already begun to integrate the technology into their business models. Standard Chartered, for instance, has set up an Open API Developer Portal, and the Central Bank of Ireland is gradually adding partners like Facebook Payments International Limited to its list of payment providers.
Before the mass adoption of open banking can happen, there are numerous obstacles to overcome. This includes the reluctance of banks to adapt due to the complicated process of updating legacy systems, as well as public concern over data privacy. To facilitate successful open banking, banks need to ensure they have data-centric IT infrastructures and quality real-time analytics. It’s not just banks that need to make changes – laws, cybersecurity and government frameworks are also responsible for enabling a new approach to finance. However, if the Open Banking Standard is anything to go by, innovative banking is already a clear priority.