From open banking to open finance, new opportunities and challenges for banks, businesses and consumers have arisen. We explore what this really means and everything you need to know as we move into this new age of innovation.
Introducing the new open world of consumer data
Recent years have sparked a milestone of digital transformation within the banking and financial sector. Consumers have greater access to digital data and have a greater desire for transparency when making decisions. This digital awakening has brought rise to new terminology and concepts in the financial space, with two of the most prevalent being Open Banking and Open Finance. These new changes will impact not only banks and financial service providers, but consumers, Fintechs, small businesses, and the economy as a whole. Understanding what Open Banking and Open Finance are will help to guide us into the future of finances and provide a greater appreciation for the wide range of benefits we can hope to see.
What is Open Banking?
Open Banking refers to the newly emerging ability for a third-party provider to build applications, software and services that work in conjunction with financial institutions due to open application programming interfaces (API). This allows consumers to access their banking information and data digitally, giving them the freedom to hold greater control over their personal finance. Ultimately, it makes it possible for consumers to easily push, pull, or move their funds without encountering the limitations of dealing with just one financial institution. This means going forwards there will be a shift to greater competition in banking services and more innovative products. With easier access to services and higher banking standards, many financial services providers will have to adjust their business models to be more consumer friendly.
Benefits:
- Improved access to personal banking data & information
- Greater competition = better consumer banking experience
- A more personalized experience
What is Open Finance?
Open Finance builds upon Open Banking and expands to apply the same principles beyond the banking industry to all aspects of the financial services industry. It is based on the concept of being able to securely send and access digital financial information, without the looming risk of theft or fraud. It offers the freedom for third parties developers to help create innovation for all types of financial products beyond just banking. Providing consumers with more autonomy when it comes to their finances. Open Finances affects not just Canadian consumers and the financial services sector, but the federal government and the Canadian economy as a whole.
Benefits:
- Ability to aggregate and store all financial data and information in one place
- Greater transparency and freedom when it comes to consumer data and information
- Opportunity for greater innovation within the financial industry
What does this mean moving forward?
With the introduction of third-party providers and increased data visibility, come the associated drawbacks, such as questions around consumer data rights, the potential for fraud and theft, maintaining technical standards and enforcing regulations. As we move forward it will be important to combat these potential risks by ensuring consumer welfare is kept at the forefront of new features, and consistent consumer protection is offered across all newly emerging platforms and services.
Key Takeaways
- Open banking and open finance mean greater transparency for consumers throughout all forms of financial interaction when it comes to data and information
- Open banking and open finance allow for third-party developers, such as Zūm Rails to build software and solutions that work in tandem with financial institutions to create a better overall experience that allows for better, more informed financial decisions
To learn more about Open Banking, Open Finance and how Zūm Rails is combining them with Instant Payments, check out our products here