At the heart of the concept, open banking recognizes that consumers’ banking data belongs to them, not the banks where they do business. The goal is to make it possible for that data to move with any customer that opts to participate—in a standardized format, using common APIs, across and among all financial institutions.
This is a powerful idea for consumers, holding the promise of increased competition in financial products, more innovation, and greater financial inclusion. It has the potential to simplify and improve the consumer experience with a range of financial products.
Progress toward open banking can be an attractive proposition for some financial companies, allowing access to a trove of information on the financial habits and needs of a customer, even when they have little history with that customer. Open banking offers significant opportunity for businesses positioned to develop or take advantage of new business models.
At the same time, aspects of open banking may give other companies pause. Updating systems so that they communicate effectively through open banking APIs can be expensive, for one thing. Some companies may see competitive advantages that they have long enjoyed eroded by the changes.
Open banking puts the customer at the center of the banking relationship, with financial institutions gaining a better understanding of customer needs and motivations. A bank may be able to identify a customer at risk of leaving for a competitor, for example, and mitigate the situation with a personalized offer such as a discount on a service. Or a bank might use open banking data to identify a specific behavior, based on a defining moment a customer’s life, and react with a strategy to offer an attractive product.