Whenever we turn our smartphones and browse the internet, numerous buzzwords are being floated around. On an average day, you see names such as “cryptocurrency”, “web3”, “metaverse”, “bitcoin” and many other esoteric names for the average user.
It’s obvious that these names are slowly becoming the main staple and permeate through the different layers of the societal framework, it will stay there for some time.
Metaverse could be seen as a buzzword being pushed by a cash-heavy marketing team. One shift that is not being talked about a lot and is growing, is “open banking”. It could be seen more as an ideology than a financial instrument such as bitcoin.
Regardless, it is a fundamental pillar of the future of finance if traditional banks want to stay competitive in our decentralized era.
Open banking is basically the idea of banks sharing their data with the public. This data can then be used by developers to build applications on top of that customers can use. These data could even be used for research purposes as well.
The Tides Are Changing
Historically, banks were seen as a black box, you put your money into it, and depending on your interest, you can join programs to grow your money or just let it stay there as a “safe” haven.
The operations of the bank were never public and certain information was kept away from you as a client. In most countries, this basic model of how the banks work remains the same.
Fast forward a couple of years ago, due to improvement in core technologies and a data explosion, this model is changing and it is accelerating. In the United States of America for example, you have companies such as Plaid who are changing the way how customers interact with their banking data.
Plaid makes it easy for users to connect their bank account to other applications, this data is accessible through an API (Application Programming Interface). It’s an interesting application but only just the beginning of the fintech open data era.
Benefits Of Open Banking
Open banking might not be easily recognizable if you are not looking at the changes in finance. The benefits or changes with such technology might go unnoticed. Thus, I have listed 4 main reasons as to why open banking is necessary.
Transparency
Open banking provides transparency with our finances. Imagine if you have 4 different bank accounts from 4 different banks. Analyzing your financial data with a spreadsheet could be a huge pain and it’s hard to keep track of your data.
Open banking makes all those data transparent. All your data across all banks could be aggregated under one platform which could then make it easier to view and analyze.
Mint, is a platform that allows this to happen. You can connect all your banking data onto one platform and view all your information. You don’t need to open 5 separate banking applications to view your data.
Personalization
With your data now available on the internet, developers can design personalized applications for specific financial interests. Spendee is an application that allows you to personally track your income and expenses.
Applications such as these can allow you to track your cash flow, understand your financial habits and provide many other benefits such as analytics that would normally take a financial practitioner of some sort back in the past.
When data is available for developers to play with, they can get pretty creative and that is exactly what we are seeing now.
Automation
Automation is eating the world at this point and it’s not going back. Open banking is also making it easier for developers to create applications that are making automated decisions for us.
These automated decisions would normally take multiple persons to accomplish. For example, Digit is an application that automates processes such as saving, investing, budgeting, and other things all in one.
I am assuming that this is just the beginning as research is being done on how to apply cutting-edge artificial intelligent models to data in new and interesting ways. It’s definitely an area that I will look into as I am very enthusiastic about machine learning and artificial intelligent systems.
Competition
Open banking makes it easier for startups to break into the industry and have an impact. Due to the accessibility to data, individuals from all around the world can be able to build applications on top of data provided by banks and other financial institutions.
It promotes innovation, ingenuity, and strips away a little of the control that large banks usually have in the financial space.
Cryptocurrency is already causing an uproar among “dinosaurs” in the financial industry and it’s just the beginning for them. As data gets more accessible, customers will flock to applications that make it more convenient for them.
This will force archaic banks to spend money to not just get involved with open banking but develop applications as well.
The Future
Open banking is just one reason why the data revolution is a beautiful thing. Even though there are drawbacks such as data security, accessibility, and other issues, it is an idea that policymakers from different countries can take into consideration.
It is already happening in the USA and other parts of the world. But it has not yet been a large-scale movement.
This will happen in time and when it does, banks will have to rethink their cards around the table.
