Open Banking

Posted on July 4th, 2022

The banking sector has undergone a wave of newness and various changes concurrent with the dynamism of fintech. With new technologies and capabilities emerging at every corner, it becomes crucial for traditional financial institutions to analyze their future alongside this disruption. 

Open Banking is one of the tributaries in this river of fintech evolution that has had a tremendous influence on banking methods. 

What is Open Banking?

Open banking is a newly established method of banking where financial institutions collaborate with non-financial parties by sharing financial and personal information of customers to enhance financial services. It involves strict application of regulations and compliances that safeguard customer interests. 

Banks and traditional financial institutions implement APIs (Application Programming Interfaces) created by third-parties, which allow them to incorporate advanced technologies into their existing systems to provide more efficient and diverse services and products.

While open banking compels active participation of regulatory authorities, it also demands adequate freedom and space for innovation. With countless startups surfacing globally, the level of competition has never been so high. An environment as competitive as the one we have today, requires freedom to give innovative solutions that can cause further positive disruptions. Financial institutions can employ advanced technologies to serve their customers better by collaborating with third-parties, 

Types of Open Banking

There are many variations of Open Banking methods implemented globally. These variations are across different sectors like products and services, targeted timelines, the parties involved, etc. The two broad categories that define all these variations are:

Market-oriented Open Banking

Countries like USA, where state-regulations dominate regulations for banking systems, market-led open banking methods take charge. Market-oriented open banking allows better freedom and evasion of red tapism; however, it also has the potential to compromise data security. Most regulatory bodies advise against this approach because of security issues and advocate the implementation of regulation-led open banking.

Regulation-oriented Open Banking

Under this method, open banking is governed by regulations. Only actions and alliances permitted under this method are allowed to take place. The Australian authorities have created the Consumer Data Rights (CDR) Act that allows consumers to share their personal details with their choice of third-parties.

Key Benefits of Open Banking

Open Banking has opened numerous doors of growth opportunities for people globally. The main areas which have benefitted from open banking are:

Customer Service

The level of customer service offered by financial institutions has increased manifold. Earlier traditional systems restricted focus on customers, where ordinary processes and employee-level work took over the main stage. With open banking stepping into the picture, the transition of banks and financial institutions is immense. When third-parties take technical lead and supply advanced technological supplements, traditional financial bodies can guarantee quicker results, more customer-centric processes, and minimal bureaucracy.

Revenue Streams

With more growth opportunities and an upsurge in the participants, open banking has opened more revenue chambers for people to explore. The scope of applied technology is immense; with more and more people realizing the importance of digitalization, the number of opportunities is incredible.

More Sustainable Business

 Finance is not the only sector getting a digital makeover. All dominating sectors have revamped owing to digitalization. With open banking and other technologies taking the helm of the financial sector, the companies collaborating in this space would become more sustainable and stable. 


The Core Capabilities of Open Banking

Even though open banking has been here for some time, it is still not a dominant branch of fintech. This field is gradually gaining more traction with more businesses pouring in. The future holds big plans for open banking, and all participating entities have innumerable opportunities lined up for them like:

Data Custody

With continuous transfer of personal and financial data between companies, one of the key elements that would decide who holds the bigger hand is data custody. The future would bring more regulations and policies defining how data custody would occur, and entities would have an opportunity to use this in their favor.

Data Management

The management, analysis and handling of shared data is another knot waiting to open completely. Although third-parties and financial institutions have pre-defined onuses, how data would be managed ideally and by whom is a vast opportunity yet to be explored.

Agile Partnerships

Technology enables agility and quickness. In open banking, the more agile and flexible data sharing is, the better the partnership should be. Agile partnerships would enable quick and transparent transfers of data and reports, which would help the overall purpose of open banking.


Data security is a global issue in fintech that is being worked on uninterruptedly. With open banking, the issue of data security is slightly more as there is transfer of sensitive information between parties. Although the fintech space in this regard is consistent with the existing regulations, data security is an area where improvements would always be welcome, rendering it another core capability of open banking.

Closing Remarks

Open banking is a concept which is disrupting traditional methods of banking. With strict policies and compliance standards, combined with the freedom to innovate, open banking has emerged as the perfect space that promotes technological developments. Mixing novel technologies with traditional systems is changing banking.

Although open banking is emerging in different places at different paces and variations, it still has a long way to go. With countries like Hong Kong, UK and US exemplifying the growth opportunities and benefits of open banking, other countries in Southeast Asia, East Africa and Europe are cautiously following the steps to explore open banking.

Related Articles

Have any questions?