Open Banking isn’t just for consumers – how APIs can change the business landscape too
Many firms have not yet looked to capitalise on the promise of Open Banking and the real benefits the technology can bring, writes Yolt Technology Services' Leon Muis.
In the years since its inception in late 2015, Open Banking has already transformed the way millions of consumers manage their personal finances and use their data. Application Programming Interfaces (APIs) mean that people can view all of their bank account information in one place, with the work of YTS, and other providers, connecting institutions all across the financial services sector.
And this has been hugely successful, with the majority of mainstream banks, nearly all challenger banks, and myriad money management apps all giving consumers more choice and freedom with their finances.
But businesses themselves are yet to capitalise on the promise of Open Banking and the real benefits the technology can bring, and that’s largely because they don’t know how it can apply to them.
Under the hood
Breaking through the jargon and showing businesses in simple terms what’s ‘under the hood’ of Open Banking is the surest way to build awareness.
At its core, Open Banking gives companies access to Account Information Services (AIS), Payment Initiation Services (PIS), and data enrichment capabilities, all through the power of APIs. Some have the resources to develop this technology themselves, but the majority of businesses don’t, and that’s where Technical Service Providers (TSPs) come in to help.
TSPs build and equip firms with ready-made APIs, giving them Open Banking functionality with little investment and short lead times. Put simply, TSPs make Open Banking open to all, not just the big industry players.
What does that mean for my business?
That’s a question many firms ask – how can we actually benefit from Open Banking? Beginning with AIS, the most widely applicable functionality, businesses can gain a much clearer insight into the financial activities of current and prospective customers – their bank balances, income, actual expenses and spending habits all build a picture of each customer. That information is available instantly, digitally, securely, and with lower costs than sharing physical copies. In practice, that might mean that a lender assessing a credit application can halve the time each case takes, or a bank helping a customer to open a new current account can do so much more efficiently. AIS can really be a game changer.
PIS takes this one step further, and changes the way you operate, not just what you know about your customers. Offering credit card payments has long been the standard option for online merchants, because it’s an easy and safe way for consumers to complete their purchases. However, the drawbacks are significant: processing a credit card payment generally costs you a significant percentage of the purchase price. Settlement windows also delay the transfer of funds. PIS gives customers the ability to pay vendors directly from their bank accounts, while only having to confirm the payment with their bank. And because the transfer is initiated instantly, settlement windows are avoided. It’s easy, secure, more cost-effective per transaction, and all made possible by PSD2 and Open Banking.
The final piece of the puzzle is data enrichment. This allows any business in any sector to use the information it gathers through AIS - the pictures it’s created of each customer - to directly inform business and service decisions. The data AIS harvests gives real-time and unparalleled insight into behaviour and customer needs. Not only will the business be able to plan its services more efficiently, but the end-user will have a much-improved and personalised experience. For instance, a retailer with access to information on customer spending habits, and the ability to identify trends, can send that customer targeted offers for the products they’re most likely to buy.
Looking to the future
Open banking technology is constantly evolving, and it is inherently scalable. Not only will it deliver benefits in the short term, but it will support your business through all stages of its development in the medium and longer terms too. As your business grows, open banking grows alongside it.
As a business, you shouldn’t start by asking yourself whether open banking is right for you – instead, you should think about your wider strategy. Do you have access to customer information, but no way to do anything with it? Can you speedily access the data you need, and share that information with others? Do you need to reduce costs and increase revenue at the same time? If the answer to any of these questions is yes, then open banking can make a significant difference not only to the way you operate, but to your prospects for future success too.