In: Finance
What is Open Banking? As it is a new challenge for international banks, how should banks prepare for the new challenge?
Open Banking
Open Banking is a revolution in the banking system where third party fintech companies can prepare Software platform where they can access the Financial information from various banks and financial institutions which share their API ( Application programming interface) with the Platform. The Fintech companies offering the open banking provides customized tools and apps to offer products that are highly customized for individual customers.
Take the example of a customer looking for a mortgage loan. An open banking app can pull up a report which will access your bank account details in various banks , understand your affordability and create the report with various options of loans available from various banks or institutions which are tailormade to your requirement and affordability.
Open banking is a highly beneficial to customers who can get all his financial information in a single place and ask for tailormade product offerings and compare those in the single app.
Open banking is a highly promising market for the banks and financial institutions as there is unlimited potential to tap new customers and market segments by offering new innovative products at a much cost effective manner which could not be done in traditional banking channels.
Open Banking tools have high level of data security and data is encrypted with most advanced security measures.
Preparation for New Challenge
However , it is a huge challenge for the international banks to embrace the open banking system.
The first hurdle is the privacy concern of customers. A large portion of customers in various regions are concerned about sharing banking information with third parties. Banks need to convince the customers with the high security levels and the huge advantages open banking offers to get the customers consent.
The second hurdle will be for the traditional bankers to arrange for sharing the API is a secured way and store the data safely. Most of the banks need to upgrade the IT infrastructure to be ready for this opening up. To prevent cyber frauds and hacking, stricter security norms, stricter KYC and Anti Monet Laundering checks are to be adopted by the traditional banks.
Third hurdle would be to change the way the traditional banks are operating and offering products to its existing customer base. As open banking will do high levels of customizations in product offerings, the banks should be ready to effectively collaborate with the Fintech companies providing open banking and explore the ways to modify the product offerings with greater flexibility and innovative approaches. The operation mindset of the traditional banks need to change to compete with the new entrants in the digital market. Open banking is opening up a huge unexplored digital market which the banks need to grab with flexible and innovative product offerings in a cost effective way.