What Is Open Banking?
November 12, 2021
What Is ACH Payment and How Does It Work?
November 29, 2021
Open banking is a revelatory new concept in the world of online finances. Unlike with big banks, where most features are transaction-based, open banking provides an entirely new framework through which a plethora of innovative and groundbreaking applications can be accessed by consumers to manage finances. In a nutshell, open banking refers to the process of sharing personal customer financial data with third parties. These third parties are known as Fintechs. Open banking is used in many countries across the world, including Australia and the United Kingdom. This is how open banking works in simple words.
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Let’s dig a little deeper into the inner workings of open banking. How does it work? Is it secure? And how does it differ from banking with a large-scale bank? Read on to find the answers to these questions and more:
Open Banking: Explained
With open banking, data is shared to third-party applications like tech startups and online financial service vendors with the help of Application Programming Interfaces (APIs). APIs consist of a set of codes that determine how different components of software should interact or communicate with one another. APIs give third-party applications access to personal financial data in an efficient and safe manner.
Is Open Banking Secure?
Yes, open banking is incredibly safe – in fact, it is just as safe as your online banking. As the proper owner of their data, consumers are the only people who can consent to share personal information with regulated third-party applications. Consumers can choose exactly which segment of personal data they wish to share, with who, and for how long. In general, third-party applications involved with open banking should:
- Never ask users for their online banking password, and always redirect the user to their original bank for login purposes.
- Be Financial Conduct Authority-authorised (FCA) and included in the open banking directory.
In order to gain access to open banking APIs, third-party applications must undergo a strict security check and independent review to ensure they are FCA compliant.
How Can I Benefit From Open Banking?
When it comes to open banking, the benefits are endless. Open banking gives the customer more control and a better understanding of their finances. A great example of this concept in action is for those in the process of purchasing a new home. At the touch of a button, open banking allows buyers to give permission to mortgage providers to access details from their online banking. In an instant, mortgage providers can confirm the buyers’ identity, assess their ability to afford the home, and provide a quick and accurate decision on the mortgage. With open banking, manual, paper documentation is a thing of the past.
Another example of how open banking works and if it can be advantageous is in the often taxing process of switching chequing accounts from one bank to another. Open banking makes this process seamless, and can even help customers in comparing features offered by two different banks.
Kapital empowers businesses with true end-to-end open banking solutions, data analytics with Kaptrak, and digital payments by Kapcharge. Enhance your offerings and gain a competitive advantage. Ask for your demo and get in touch with one of our team members at Kapital Solutions today.
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