Open Banking Basics – The Future of US Financial Services
Over the years, the description of banking concepts has evolved due to ongoing digitization. Indeed, the US financial sector is developing, which helps businesses progress.
Amongst these transformations lies the concept of open banking. Although the term has become a buzzword in eastern countries, the US is still new to the concept.
If you are associated with the financial service sector, you are probably familiar with open banking. Ideally, this banking method is a way to incorporate Application Programming Interfaces (APIs) and enable developers to build specific applications in financial institutions.
Meaning, Use Cases, History, and Benefits of Open Banking
This banking process gives financial data access to third-party fintech companies. The financial service agencies can utilize open banking to get consumer information from transactions at numerous financial institutions. (Both bank and non-bank) Besides, the concept utilizes the benefits of APIs to solidify security.
Some believe that open banking is a significant source of innovation that will reshape the American banking industry.
It can change the competitive landscape and enhance the customer experience. People will have to grant consent by agreeing to the T&C of an online application to access open banking services. You can have promising gains from a consensual relationship between your financial data and a third-party company.
The Use Cases of Open Banking Around the World
You might be wondering how open banking benefits customers or businesses? To understand that, you must go through the use cases mentioned below:
- It makes currency conversions, purchases, and remittances convenient
- You will get offerings of various customized products or personalized banking services
- It helps you access multiple accounts through one application that monitors your financial activities
- You will have greater transparency and lucrative deals
The best examples of open banking are Cleo and Cake. These fintech companies have successfully incorporated the essence of open banking into their financial goals. Users will have access to AI technology coupled with tracking features and an advisor for their digital debt.
Also Read: The Impact of Technologies on Financial Industry
The foundation of this banking method can be traced back to 2013, with origins in the European Commission’s PSD2. Consequently, national frameworks incorporated this concept, and over 87% of countries utilized some form of open banking API by 2019.
The Benefits of Open Banking in the US
Utilizing this banking concept will be beneficial for the US financial structure. It will automate and streamline the processes while giving companies the freedom to analyze consented data.
As an American consumer, you can access these benefits after trusting open banking services:
- Increased access to tailored information, products, and services
- Enhanced transparency and security with the use of data
- Instant access to financial services like credit cards
- Reduced cost of financial operations
- Control over your expenditure and improvement in your finances
You can access these benefits because the American financial sector is private industry-led. Therefore, private companies can now lay the groundwork to fill the banking sector’s shortcomings with the open banking regulations.
Open Banking Entail in the US
In the US, open banking allows data flow in a controlled manner from financial institutions through APIs. Indeed, it entails transferring information from one repository to third-party service providers. The starting point of this concept roots in API enablement in the banking sector.
Subsequently, it transforms the banking infrastructure and changes the core features of fintech agencies. Implementing open banking strategies in the US means creating API gateways.
Doing so exposes the customer data that helps companies use it for core system analysis. Consequently, it enhances functionality that allows banking clients to formulate plans with third-party fintech agencies quickly. Shortly, such companies will maintain the API portals that rule the banking sector.
The US will eventually fall into the rabbit hole of utilizing developed and modern API-first systems.
The Open Banking Scenario in the US
Only private companies are leading the open banking system and API development. The top three open banking providers in the country are FIS, JHA, and Fiserv. Besides, companies need to make customers trust the process and give safety top priority.
Indeed, it will be hard to populate open banking capabilities since Americans are confused about its benefits.
According to the Morning Consult, around 63% of the citizens worry about financial safety online. They do not trust the open banking system as it supports data sharing, which could lead to malicious activities. The fintech industry must build authentic cybersecurity standards after partnering with a bank.
This way, companies can keep personal data safe and let the users utilize the tools of open banking. Ideally, service providers, banks, and consumers can work to transition the country into an open banking system seamlessly.
The Future of US Financial Services
Even if the open banking framework is not potent enough, the US could gain a lot of potential from the technical side of the industry. Indeed, America already has API gateways that financial companies could choose from. Hence, it makes the potential integration of open banking more manageable and seamless.
Compared to other countries, the US is lagging in this sector. However, there is a multinational corporation willing to oversee the operational processes of open banking.
It will increase the fintech demand and generate all the benefits mentioned earlier. With this technology, consumers could gain control over their finances through personalization. Besides, businesses can access effective targeting and automated services as well.
All these allude to open banking being the true future of US financial services.
The Bottom Line
Soon, physically visiting your bank branch would become a distant memory. The implementation of open banking will slowly but surely accentuate certain online services.
This type of banking transformed the market in other countries while changing the business framework of the players involved.
The fintech industry in the US is developing and evolving while trying to catch up with the buzzwords. Open banking is close to becoming a reality-shaping technology that will help the industry rediscover financial services. Indeed, benefits like better financial understanding and the ability to customize shopping experiences would compel people to choose this software.