Open Banking is a phenomenon that is slowly gaining traction in the finance world. The rise of online banking has given consumers, businesses, and banks a host of new beneficial abilities to use in the financial world. Those benefits don’t come without their drawbacks, however. Let’s go through all of the benefits and drawbacks of open banking so you can stay informed about the capabilities and risks of online banking.
The Benefits of Open Banking
Streamlined methods of payment:
By using open banking technological developments, consumers are able to use a wider variety of payment options which makes payment easier for both individuals and businesses. These new payment methods are tailored to lower the risk of non-payment and are especially beneficial to people working in the gig economy.
Additionally, streamlined cash flow environment can potentially lead to the unification of accounts in real-time with effective and safe invoicing harmonization.
Centralization of financial services:
The implementation of open banking is beneficial to both banks and customers. A customer’s banking data can be put into a single dashboard, which therefore allows banks to give financial solutions that suit their customers’ needs.
Customers and businesses using multiple banks to control their finances can institute multiple payments from one login through an online banking application. This is a much faster alternative then signing in to each banking application and submitting a payment from each account.
Personalization of financial services:
The rise of online banking has given consumers the ability to control which and how much of their data is shared with financial providers.
Additionally, financial institutions can now deliver more personalized financial services which can adapt to their customers needs. For example, apps such as Mint can gather your data from a host of different financial institutions to provide you with a financial snapshot.
Through the advent of open banking, more firms can now enter the financial market who are not bound by the existing financial infrastructure. By making entering the financial market easier, this fosters competition in the banking sector. This newfound competition can lead to consumers having more flexibility and choice of banking institutions and products.
The Drawbacks of Open Banking
The shift towards open banking has been bogged down by consumer’s security concerns about data. Financial institutions must be able to let consumers know exactly how they use a consumer’s data and where it is being stored.
In addition, customers do not have much trust in how banks use their data after many scandals about financial data being harvested, used, and shared which has slowed the adoption of online banking.
While banking has become more reliant on technological innovations, the accessibility problem remains. The younger generations may be more willing to accept a digitized banking experience, but where does that leave the older generations?
People who prefer more face to face interactions with their bank will find that their number of in-person encounters shrinking after adopting online banking.
Banks will have to take on enormous risks to become a part of a large digitalized infrastructure project that is not entirely regulated. By shifting a bank’s interactions from working directly with the customer to working with TPPs, banks need to redo their risk procedures. This is so that banks can make sure they transfer their financial information to TPPs safely and securely.
This article was written by Ian, an intern at Irish Mortgage Brokers and Yes.ie from the USA.