In a nutshell
The definition
Open Banking is a term used in the financial industry to describe a concept that enables data to be made accessible and operations to be initiated with third parties.
The Open Banking Implementation Entity has derived the following definition:
"Brand new, secure way for consumers including small businesses to share information, allowing new and existing companies to offer super-fast payment methods and innovative banking products."
In a broader sense, Open Banking can be seen as a vision for fundamental change in finance. The step from a closed system to a banking ecosystem, which focuses on the data and its authorization by the customer.
The term Open Banking covers the following central aspects:
- The use of common interfaces (APIs) to enable the exchange and triggering of operations in a standardised manner
- Reduction of market entry barriers for new competitors
- Lower switching costs between individual service providers
- Improved price transparency across personal and business financial relationships
The future of Open Banking
Open banking is part of a disruptive wave that will affect the financial industry in the coming years. This disruptive wave is driven on the one hand by increased customer expectations and new competitors. The technology enables greater transparency and access to financial products.
Banks play a key role in enabling customers to make payments. They issue cards, receive payment orders and allow direct debit orders. With Open Banking the value chains of banks will change.
As technology companies have accustomed their users to a seamless and pleasant experience, customers are looking for the same pleasant design, ease of use, speed and convenience in their banking history, especially in digital banking. To support this statement, a study by Bain & Company (2017) reported that banks' online platforms were disappointing for 45% of respondents in terms of convenience and available options.