The world of finances changes continuously, yet it is often slow to respond to technological changes such as the advent of online banking, smartphones, and other factors of that nature. Furthermore, even if technological systems exist to allow for banking to continue through these new forms of technology, people are often slow to accept it.
Open banking seeks to utilize third-party systems and developers to create financial applications and other services that affect how we bank and how we might bank in the future. The creation of these sorts of systems can open new revenue streams for people and provide a way for businesses to manage their finances or even pay employees. Open banking represents a shift in the financial landscape.
Open banking refers to any banking system that is entirely reliant upon the internet and digital programs. One widespread example of open banking is the API PayPal, which many companies use to pay employees both on and off of a regular payroll. Other formats with similar functions sprang up after that and gave working professionals the same diversity in both revenue streams and banking options.
Many of these sites and services, including PayPal, work by allowing digital transactions between two banks via the same banking information used to buy or sell something on amazon or write a check. Open banking also refers to the digital interface now provided by banks themselves. Checks may now be directly deposited into bank accounts via the camera on the account holder’s iPhone.
In the case of both of these forms, open banking means bank data is traded more often across the web, and that third party distributors have ready access to it. Many people who may use open banking can bring up questions about whether or not allowing this data to be shared between companies is safe for one’s financial security.
The vast majority of open banking sites and banks’ programs for their open banking forms approach their interface and programming with an eye toward safety and security. However, there is no absolute guarantee that a hacker or virus cannot compromise a person’s data. A significant benefit of open banking in situations like this is the increased responsiveness of its staff for this reason.
Anyone seeking to maintain a successful open banking platform needs to respond to issues such as data breaches promptly. This often takes the form of helping account holders cancel bank cards or secure transaction accounts. An open banking platform is only successful if the people using it trust that their account data is as secure as possible.
In terms of security, most open banking services must inform account holders on how and when they may share their information. United States banks have had these restrictions for some time, but other countries such as the United Kingdom have adopted regulations that require account holders to approve each time their data is shared. This limits the chances for the information to be abused, lost, or stolen.
Open banking means companies can spend less time and energy dedicated to in-person transactions in banks. Most people, especially in the younger generations, are less interested in physically handing checks to a bank teller behind a desk when they can do the same process through their computer or phone from their home. Employers also have less of a reason to give out physical checks to their employees when most would prefer direct deposit options anyway.
In the case of the latter of these, it also brings up the point that most businesses sort their money through third-party programs already. This allows for a system to monitor all of its employees’ wages and other incoming and outgoing expenses. This principle is true for small businesses but is perhaps ten times more relevant when speaking about larger companies and corporations.
On a macro scale, many businesses would be slower to address any goings-on around them if they did not have the opportunity to outsource their banking to a third party. Large companies and corporations can safely handle their financial information and correspond with a bank more directly on their behalf.
Individuals also benefit from PFM (Personal Finance Monitor) apps using the smartphones mentioned above. Under The European Commission’s Second Payment Services Directive (PSD2), third-party banking services can make payments on a client’s behalf. This is far from a new idea, as many subscription sites such as Netflix automatically make payments on the customer’s behalf without any correspondence.
In the case of PSD2s, it takes the concept to a different level. Money transfer services are not new either, with banks having offered them for years. But with the increased isolation of our current time, there is a growing need for services that completely and remotely handle these transactions. Through services like Moneygram, account holders can transfer their funds from domestically to the far end of the globe.
These services are primarily still used by large businesses that need to transfer much larger sums of money than the average person ever would. Most private citizens choose to use services like Venmo and PayPal for their open banking needs.
Open banking is a new facet of our financial world moving forward. Open banking offers customers and account holders a much wider array of ways to spend and make money, as well as adjacent revenue streams in some cases. Transactions internationally and overseas are now a simple matter.
The only thing left is for the people to use it to acclimate and learn how to safely and effectively utilize these services. Those who seek to use these platforms should understand better how to make their account holders comfortable while leaving their sensitive financial information in the hands of an open banking company.
In the end, it will likely be a slow process, but informing the public is the first step.