
14th Edition Third Party Risk Management And Oversight For Financial Institutions
- 27 Feb, 2023 08:00 am
Open Banking is a protected way of sharing customer’s financial information with third-party providers. With customer’s consent, banks can share account and transaction details with third parties through application programming interfaces (API). Open APIs enable exchange of information between the bank and third-party software provider. This helps banks to offer tailored products and services to acquire and retain customers.
For third-party service providers to be fully authorized to use Open Banking APIs, they must be registered under one of or both of the following:
AISP– Stands for Account Information Service Provider
PISP– Stands for Payment Initiation Service Provider
Open APIs expose a range of data to third-party financial service solution providers. They enable third-party developers to build applications and services around the financial institution.
These APIs are designed to support Open Banking regulations. Through the adoption and deployment of APIs, banks can extend and enhance their native services and offerings. Banks can rapidly advance their digital transformation agenda in the Open Banking world by leveraging third-party applications and service ecosystems that are enabled by API
Advantages of Open Banking to Customers
Advantages of Open Banking to Fintech
The prerequisite for open banking is participation by customers who voluntarily agree to allow access to their data. It’s vital for open banking to take off. However, open banking aspirations appear to have fallen on deaf ears — on an average only 26% of customers globally favor adopting open banking; this percentage is much higher in emerging markets.
As with any significant change, open banking requires massive education to familiarize customers with the concept and generate buy in. Customer apathy may well result from banks’ failure to effectively communicate and educate customers about the changes to banking terms and conditions that precede open banking.
As banks navigate their way to the digital era, they are confronted by several non-bank forces such as fintechs, new pure-digital entities, large non-banks such as Amazon and technology vendors. Each of these have begun rewriting the rules of the banking game and are creating a new banking ecosystem, challenging banks to respond.
Open banking relies on data sharing. This marks a paradigm shift for banks. Their difficulties range from the prospect of losing control over customer data and product cannibalization that might result. Banks appear to be struggling with how much customer data they can subject to exposure in order to participate meaningfully in the open banking ecosystem.
Traditionally, departmental structures, product-centricity and compliance goals have influenced the rollout of core banking systems. Such legacy systems have become complex over time and are preventing effective interoperability with open banking APIs. The critical shift to customer-centric systems and agility enables banks to overcome the limitations of siloed legacy systems.