Introduction
The financial service industry is rapidly evolving due to the opportunities provided by open banking and big data. This has allowed financial institutions, fintech companies, businesses and customers to use this data effectively. With open banking, customers can now give permission for their financial data to be viewed via secure Application Programming Interfaces (APIs). When combined with big data, financial institutions can now gain insight into customer behaviors, improve decision making, offer personalization and provide new services. This has created a more competitive, inclusive and customer focused financial marketplace.
1. Personalized Financial Products and Services
Open banking and big data can help financial institutions provide products tailored to their customer’s specific needs. By analyzing the data of their customers’ transactions, income trends, saving and financial obligations, financial service providers can better understand their customers. This means banks and fintech companies can recommend the correct savings account, insurance, investment and loan package. By offering products tailored to their customer, financial institutions can improve customer satisfaction, build stronger relationships and increase engagement. Customers can now see products that suit them individually.
2. Account Aggregation
One of the key opportunities offered by open banking is Account Aggregation. This means customers can view all their financial information across different financial institutions in one place. Using APIs, financial institutions can securely view customer’s account details. This can help customers to clearly see their account balances, transactions, savings and more without having to use multiple banking apps. Customers can now easily manage their financial information, see where they are wasting money and make more informed decisions. Financial institutions can also use this data (with permission) to provide better financial services.
3. Alternative Credit Assessment
Traditional credit assessment can be difficult to get for people who do not have much of a credit history. This is because they often rely on credit history, security and borrowing history. Open banking can help provide alternative credit assessments. With permission, lenders can analyze customers’ financial transactions. Using big data, lenders can view customer’s income, regular outgoings, account activity and current financial commitments. This can help provide a more detailed insight to the customer, which can complement traditional credit information. However, lenders must still ensure they have correct data protection processes in place.
4. Faster Digital Lending
Open banking is helping digital lenders by giving financial institutions access to relevant data (with permission). This can help reduce the need for lengthy application processes. Lenders can now easily view any relevant financial information using secure APIs. Big data can help lenders analyze customer income, repayment ability and current commitments. This can help speed up approvals and make it easier for people and small businesses to gain credit. Digital lenders can also provide products tailored to the customer. However, lenders must provide responsible lending.
5. Payment Innovations
Open banking can help financial institutions provide payment innovations by giving permission to financial providers to create payment services. Customers can now initiate certain transactions using third party apps using APIs. This can help with account to account payments, faster payments and easier checkouts. Big data can also help payment providers understand transaction trends, identify any issues and improve payments. Businesses may see benefits from easier collection and less reliance on some traditional payment providers. However, this will depend on the local payment infrastructure, regulations and security.
6. Advanced Financial Management
With open banking and big data there are opportunities to provide advanced financial management applications. This can help link customers’ accounts (with permission), categories transactions and monitor customer spending. For example, if someone goes over their budget they can receive alerts. Customers can also see where they are regularly paying for subscriptions they no longer need. Financial management tools can be developed by developers to help with budgeting, saving recommendations, tracking outgoings and financial planning. This can help customers make better financial decisions.
7. Improved Onboarding
Open banking and big data can also help improve the onboarding process. Customers may traditionally have to fill in lengthy forms and provide multiple documents. With linked financial platforms, financial providers with permission can view relevant information. This can help verify certain account information. Combined with digital verification and automated processes, this can make opening accounts easier. Financial institutions can also use the available data to understand what services they may need. However, open banking does not remove the need for KYC, verification and relevant regulations.
8. Increased Competition in Fintech
Open banking can help reduce barriers to financial innovation. This is because financial institutions can now provide regulated access to financial data using APIs. This can help fintech companies with permission provide services that compliment or compete with traditional banking services. Start-ups can provide budgeting platforms, digital lending, payment apps and financial advice tools without having to develop a whole banking system. This can help increase competition; therefore providers will look to improve pricing, customer service, convenience and the quality of their products. Traditional banks will also be encouraged to invest in more modern technology and work with innovative companies. Overall this benefits customers by providing more choice.
9. Increased Financial Inclusion
Financial inclusion can be a major issue for some people and small businesses. Open banking can help by allowing financial providers with permission to provide products using alternative financial data. For example, if someone has regular deposits into their account and consistent income this can show they can manage repayments even if they don’t have much of a credit history. Big data can also help financial institutions identify under-served customer segments and provide products tailored to them. While open banking can’t fully remove financial exclusion it can help provide easier and more flexible financial services.
10. Improved Fraud Detection
Having more access to financial data can help financial institutions provide better fraud detection, big data can help financial service providers analyze transaction volumes, spending, account activity and unusual payments. Machine learning can help identify any anomalies and send alerts. Open banking can also help financial providers with permission to share relevant data. However, having linked financial systems means there is more responsibility to ensure data is encrypted, secure, authenticated and monitored. Financial institutions must strike a balance between innovation and providing strong security.
11. Improved Financial Forecasting
Big data can help financial institutions and customers forecast future financial needs. By analyzing historical customer data, income, repayments and market information trends can be identified. This can help banks predict when their customers may need more liquidity. Customers can also receive estimates for future outgoings and savings. Businesses can also benefit from better cashflow forecasting. If customers give permission for relevant account information to be accessed, open banking can help provide these services with more complete data.
12. Embedded Finance
Embedded Finance can help provide financial services within platforms customers use for shopping, transport, business and more. Open banking APIs can help link financial institutions with third parties with permission. This can help provide payment services, verification and more within non-banking apps. Big data can help these platforms understand what their customers need and provide the correct services at the right time. For example, an online marketplace can provide easy payment options during checkouts. This makes financial services more accessible.
13. Improved Small Business Funding
Small and medium sized enterprises often struggle to gain funding. This is because they may not have much of a credit history, enough security or good relationships with traditional lenders. Open banking can help by allowing businesses to give permission for lenders to view relevant account information. This can include cashflow, sales deposits and regular outgoings. Big data can help analyze this data to provide a more detailed insight into how well the business is doing and their repayment ability. This can help lenders make more suitable decisions and speed up the process. Financial technology providers can also provide funding solutions tailored to the business’ cashflow. However, lenders must look at the overall risk of the business.
14. Improved Customer Experience
Open banking and big data can help financial institutions better understand their customer’s expectations. By analyzing the data of their customers (with permission) and their interactions, financial providers can identify common issues. For example, by analyzing customer transactions they can see when customers regularly have payment issues. This can help improve the application process, provide the right services and help provide quicker assistance. Using data driven decisions financial providers can see if their products are meeting their customers’ needs. This can create a more responsive banking environment.
15. International Financial Services
International payments and financial services can often be complicated due to different banking systems, currencies, regulations and processes. Open banking can help create more linked financial services. This is because financial providers with permission can view relevant account information. Big data can help financial providers understand transaction trends, monitor foreign exchange and improve international financial services. Businesses operating internationally may benefit from seeing more of their financial accounts. However, international open banking will depend on the correct technical requirements, regulations, data limitations and partnerships.
16. Improved Compliance and Risk Management
Open banking and big data can help financial institutions improve their compliance and risk management. Analytical systems can analyze transaction data and identify any anomalies. This can help monitor potential money laundering and other financial crime. APIs can also help financial institutions with permission to link information from different platforms. RegTech can help with reporting, verification and compliance. However, having more access to data means it is important to ensure information is managed responsibly. Financial institutions must comply with relevant privacy laws, have valid consent and have the correct security in place.
17. New Digital Financial Products
Perhaps the biggest opportunity open banking and big data can provide is new financial products. By working together banks, fintech companies, technology developers and other financial providers with permission can provide services that would be difficult to develop alone. This can create innovative savings platforms, investment apps, automated financial advisors, digital insurance and integrated business finance solutions. Big data can help developers understand what their customers need. APIs can help link the services. As technology and regulations develop this can help create a more flexible and linked financial services industry.
Conclusion
Open banking and big data are changing the financial services industry by providing more access to financial data. Customers can now view relevant account information with permission using APIs. Analytics can be used to provide insights that help provide personalization, alternative credit assessments, improved payments, fraud prevention and financial management. This can also help increase competition in the fintech industry, increase financial inclusion and create new digital financial products. However, this innovation must be supported with proper data protection, transparency, cybersecurity and compliance. As financial institutions and technology providers continue to work together the future of banking will rely more on linked systems. This will help provide more convenience, choice and value for customers.
Get more well researched information about Open banking and big data here.
