Understanding open banking – what it means for consumers

With open banking now live, what benefits can consumers expect to see as a result of this?

Open banking has become one of the biggest issues in the payments space today, and with good reason. With new regulations in the EU set to see financial services providers required to open up more of their customer data to third parties in 2018, there will be a huge increase in the number of applications that take advantage of this in the coming months and years.

These will allow a much wider range of organizations to enter the payments market, including fintechs, challenger banks, retailers, social media providers and more. But what will this actually look like for consumers?

There are likely to be several key applications that look to take advantage of open banking APIs in order to deliver better consumer experiences, help them make better-informed decisions and make their everyday lives more convenient. Here are just a few.

More powerful, accurate product comparisons

While comparison sites for financial products ranging from insurance to bank accounts will be familiar to many consumers, they have until now been rather limited in the information they could provide. Current tools can typically only scrape information from publicly-available websites, and require a vast database to collate this and give customers the information they need.

This is not only inefficient, but may end up with consumers being presented with less-relevant offers. But by allowing companies direct access to their transactional and account data, consumers can be offered more personalized details, allowing them to make better-informed decisions about what is the best option for their circumstances.

Streamlining approval processes

Improving the application process for products such as loans and mortgages will be another area in which open banking is expected to be particularly beneficial, and this will be the case for both consumers and providers.

Consenting to the sharing of account data can again make it easier for consumers to be offered products that are relevant to their needs and which they are more likely to be accepted for. From the lenders’ perspective, they can use this information to determine a customer’s individual risk level, which can enable them to target their loans at specific profiles and provide more attractive offers for individual consumers.

This also means customers will be saved the onerous task of providing detailed information on income and expenditure when making an application, as the loan provider will be able to simply pull it all directly from the consumer’s bank.

A better way to detect fraud

Fraud detection and prevention strategies are also able to benefit from the improved insight that open banking APIs can provide. As third-party fraud detection services would have better access to data, they could use sophisticated aggregation tools to bring together data from multiple sources, across multiple accounts, product types and providers.

This allows them much better visibility into an individual’s normal habits and spending patterns, making it easier to identify out-of-character behavioral changes that can indicate fraud, which would not be picked up by systems that are only relying on a single data set.

The potential to transform the banking sector

The potential for financial services to be transformed by the use of open banking and API technologies is almost endless, and offers great opportunities for both traditional banks and newer players. The ability to engage more directly with customers, deliver more personalized offers, reduce the effort involved in providing information and expand access to finance could have a huge impact on the way people think about their finances. In a competitive environment, banks must be ready to respond quickly to these shifting expectations.

If you’d like to learn more about open banking and the impact it will have on the payments sector, please download NCR’s Open Banking: The Art of the Possible whitepaper for more information.

Written by Andy Brown

Andy Brown

Andy is marketing director for payments at NCR. He has nearly 30 years' experience in e-payment systems from the delivery and support of systems in the Far East and Europe, from both the product management and marketing perspectives. Based in the UK, Andy is responsible for marketing NCR payment solutions.

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