Data on transactions in bank accounts enable the creation of personalized services. For example, according to a study by Capco, 72% of Gen Zers and millennials would like to receive personalized service offers.

The demand for such services enables FinTech companies to create new products based on Open Banking. Roland Mesters, Nordigen co-founder, explains why tech financial platforms choose this method of obtaining data.

The ability to obtain and analyse personal data is one of the key trends in the financial industry, and hence FinTech. In order to deliver a unique experience to each client, industry players need data from which to make decisions. For this information, FinTech goes to banks that have already collected “dossiers” on their users.

Previously, service providers developed banking APIs with specialized settings for the specific conditions under which user information was transmitted. However, this approach was far from ideal: first, it implied high costs, since a separate API was needed to interact with each organization; secondly, it was not safe. The industry had to look for an alternative, which is open banking.

The Practical Sense of Open Banking for Fintech

Open banking is a concept based on the transfer of data between financial market players using open APIs. Its main goal is to stimulate innovation and increase competition in the market, which ultimately benefits the end consumer. After all, the more players are involved, the more offers and the higher the level of service in the industry.

FinTech companies are among the most active users of open banking. Thanks to technology, they can:

  • Get access to user data (with their consent) from the largest market players: name, account number, balance status and transaction history.

  • Create new products. Based on the information received, for example, mobile applications are developed, where the client can plan and manage cash flows (including loans), invest, and receive advice in real time. For example, one of the most successful projects in the United States is Mint.com – a financial management platform with personalized suggestions and comments, the ability to draw up a budget and track the dynamics of expenses. In Europe, similar services are provided by the financial tracker Spendee, the budget management application Plum and the service offering savings accounts – Chip.

  • Post offers for the provision of services, allowing the user to choose the right ones. For example, UK-based super application Sync Money uses open banking to help clients improve their financial situation. The user can manage all accounts in different banks in one place, quickly exchange currency, make transfers, and also use the best services of many financial institutions.

Market development geography

For a long time, open banking was considered an expensive pleasure, and companies that relied on it found it difficult to attract investment. The situation has changed recently: open APIs have become more accessible. Despite the fact that the technology is still at a “low start”, analysts at Accenture are confident that the pace of its development will be rapid in all markets.

Initiatives to implement easier and more secure data exchange through open banking APIs already exist in every corner of the world. In the United States, Brazil, India, Nigeria, the United Kingdom, regulatory organizations and a legislative framework are being created. In Europe, legislation on open banking came into force in September 2019. Some countries, such as Brazil, are largely copying the European approach.

In 2021, nearly 500 providers across Europe provided open banking services. According to Mastercard’s Open Banking Readiness Index, the United Kingdom and Sweden are leading the open banking industry.

Open banking is also developing in Russia. Local API platforms like Qt Platform and API Bank are following in the footsteps of their Western colleagues (Plaid, Tink, TrueLayer, Salt Edge) and are already integrating banks and FinTech solutions. Last year, this area even attracted the first investments: the international financial group SBI Holdings bought 20% of the Russian FinTech platform QPlatfrom, which helps banks to integrate financial solutions via API. Economic effects of open banking

The concept, being a strategic direction of FinTech service, allows providing a high level of service and potentially increasing revenue by 10%, according to Accenture estimates. The increased profit is due to the visible business effects:

  • Reduced costs and time for new product launches. Using open banking APIs, you can quickly exchange data with credit institutions, thereby shortening the API setup period.

  • Abandoning your own back office. Thanks to quick access to data and the ability to easily conduct transactions in different banks, FinTech projects do not need to invest in their own development and allocate a team of IT specialists for this.

  • Fast partnerships with major players taking advantage of standardized solutions to speed up and simplify the data acquisition process.

The parade of efficiency is hampered by one “but” – security problems. Although open banking is considered a more reliable alternative to customized banking APIs, service customers are not yet fully protected from fraud. FinTech companies can be both a source and a carrier of security breaches, compromising user data.

This problem can only be solved by regulators. For example, in Europe, the PSD2 directive has already been developed, the purpose of which is to make payments safer and to help banking services adapt to new technologies.

Analysts believe open banking will have a positive impact on entire economies in the long term. For example, Accenture estimates the potential revenue from technology at $ 416 billion, and McKinsey believes that widespread adoption of open banking APIs could give a visible boost to the economies of the EU, the United Kingdom and the United States – 1% -1.5% of GDP by 2030 – and India – all 4% -5% of GDP. It makes sense that it is the FinTech companies that rely on open banking that will be able to use advanced technology and get the lion’s share of the profits from its effective use. Use all advantages of open banking at Collect & Pay platform. Contact us to schedule a call and discuss the details – [email protected]

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Disclaimer : This financial promotion is intended for retail clients. Please note that this information is of a general nature only and is not intended to address the specific circumstances of any particular entity. Also please be aware that this information is not necessarily comprehensive, complete, accurate or up to date. Collect & Pay is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the information published by Collect & Pay relates to your unique circumstances. Licence #AFSA-G-LA-2020-0005 with expiry date of 23.04.2022. Please learn more about the regulatory status of Collect & Pay : www.collectnpay.com.

 

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