Open banking: what is it? Your indispensable manual
It can give consumers easier means to get credit or tailored offers and rewards, as well as more accessible ways to examine and manage their money. Payments made through corporate accounting applications or in video games are just two examples of the various payment options that may be powered by open banking.
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Millions of individuals already have easier access to financial services thanks to this practice, which also builds on the wider use of real-time payments and other cutting-edge payment technology. As more specialized and focused services become available online, open banking has the potential to upend established financial services providers and completely change the financial services industry.
By giving customers and small companies greater control over where and how their financial data is used, it gives them more options when it comes to how they pay, manage their money, access credit, and other financial services.
Even though a lot of us now use open banking services, not many people are aware of this trend or the inner workings of it. What precisely is it then?
Open banking: what is it?
To put it simply, open banking allows you to share the data from your financial accounts in order to have access to cutting-edge financial services. Your financial information was previously solely accessible to you and your bank. In order to provide you more freedom to utilize your data for personal gain, open banking enables you to share that data with another financial service provider, such as another financial institution or outside company. These third-party suppliers may comprise a variety of fintech companies, currency exchangers, retailers, and other online platforms.
By giving another provider access to your bank account information, you may access new or better financial services, usually through apps, such as those that streamline credit applications and let you manage your money in one easy transaction. It is far more powerful than the privacy permissions on your phone, which let apps utilize your location or camera.
Since open-banking software drives several well-known financial applications, such as the stock-trading app Robinhood and the mortgage-brokering tool Rocket Mortgage, you may already be using it. A worldwide consumer study conducted by Mastercard in 40 countries, with 35,040 respondents, suggests that more individuals than they may know are utilizing open banking (see Mastercard’s 2022 New Payments Index). Although only over half are aware of open banking, almost two thirds actively use it to make purchases now and pay for them later, pay their bills, and do other financial tasks.
What categories of services does open banking offer?
Recall the last time you filed an application for a loan, with all the documentation you needed to acquire from different sources and the papers required to prove your creditworthiness. Imagine now if you could instantly supply that data—your most current financial history—by just clicking a button. With open banking, you can. Application processing times may be sped up and streamlined, and lenders and borrowers can stop manually compiling, sending, and verifying pay stubs and bank statements.
Gaining access to your bank account details can also help you take advantage of new financial services that are more relevant, customized, and give you more control over your data. For instance, a large number of us have accounts with several banks or brokerages. You may view all of your money in one location by combining the data from all of those accounts into a custom real-time dashboard with open banking. Perhaps even, it will make your money wiser: Aion is one financial service company that uses artificial intelligence on top of data to provide you useful insights that will help you manage your finances and make a budget.
Open banking solutions in several regions, including the United States, Europe, India, and the United Kingdom, enable users to authorize third parties to withdraw money from their bank accounts. By enabling a financial service provider to transfer money automatically across your accounts, you may help optimize rewards, savings, and investments or assist prevent overdraft costs. Online payments made using open banking can also be quicker and more secure: You can make transfers using the service you’re using, saving you from having to open your banking app or utilize another online payment interface.
Businesses can also access the same or comparable services. Companies can handle payments and collections, conduct real-time bank transfers, and get more financial information with the help of new solutions that interface with back-office systems.
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