Last editedFeb 20233 min read
Open banking has levelled the playing field for finance in recent years as far as customer service is concerned. It’s a movement that has catalysed an environment where financial data can be shared across platforms and devices in an instant, and it represents endless potential for customer experiences.
If it’s used to its full potential, financial service businesses could revolutionise the way they interact with their customers, and it doesn’t need to be a major struggle. To that end, here we ensure that open banking is explained in detail and also offer five examples of how you could be using it to give your customers more.
Open banking definition
Traditionally speaking, banks were quite securely siloed when it came to their operations and how they dealt with customer data. In the days before data roaming and smartphones, this made sense as isolating themselves and their customers from others was the safest way to do business.
But the customers of today expect more from their providers. Enter open banking, a system that allows all UK bodies authorised by the Financial Conduct Authority (FCA) to access financial information and initiate payments on a customer’s behalf.
It works by asking for customer consent via a secure protocol called an application programming interface (API). This is a system through which banks can communicate safely with each other to pass information that the customer has given their permission to share with each provider, asking for customer content to share that information when they initially sign up.
In practice, open banking is a means of giving customers more control over their own data, who has access to it and how it’s used by financial service providers. It lets them share data such as their balance and transaction history with other financial providers, making it much easier for those businesses to make the best use of that data.
In the UK, open banking has been part of the financial landscape since 2018 when PSD2 came into force to increase security in electronic payments across Europe. It also gave banks read-only access to data, without them or their customers having to jump through hoops.
It is commonly used for money management sites and apps that use customer data to provide them with more personalised experiences, including apps that automatically save money for you, offer you budgeting advice and store all your disparate financial information together on one platform.
Examples of open banking
Given its open architecture, the potential and benefits of open banking are practically limitless. Here are five ways financial service providers are already using it to offer more for their customers.
1. Mortgage application
By allowing your data to be shared electronically with mortgage providers, you can enjoy a streamlined mortgage application process that circumvents the tedious admin often associated with this most stressful and life-changing of times.
With real-time access, providers can make immediate decisions based on hard data, as they have a more complete picture of your finances. This allows them to make a clearer and more comprehensive risk analysis that meets compliance requirements. It also gives them more data upon which to create a deeper and more sustainable customer relationship. The same is also true for credit and debit card applications.
2. Account aggregation
This is a way of using open banking APIs to give you a top-down view of your whole finances from within one app or online platform. It’s not only bank accounts that are included either. Open banking allows you to access everything from credit card accounts to investment and loan accounts and manage them from one central location.
The convenience offered here is difficult to understate, with 24/7 access to all accounts possible with a single click or tap. Given that many of these apps can only be accessed by using strong multifactor authentication and (in the case of more modern smartphones) biometric scanning, it’s also as secure as it is transparent.
3. Finance management
Personal finance management is big business right now, particularly with the cost-of-living crisis on everyone’s minds. Open banking lets you manage your entire financial situation, placing payments into separate categories to compartmentalise your spending and help you make sensible future spending plans.
The advent of open banking API technology allows you to centralise your finances and allows financial providers to get a clearer picture of what services you will benefit from. It’s a system that generates financial insights and can be used to create smart analytical decisions.
4. Opening accounts
Opening a new bank account has been made much faster by open banking regulations. Many banks will apply a know your customer (KYC) process when signing up new customers, not only for security reasons and to limit the risk of fraud, but to help them create a more fleshed-out customer profile.
Open banking allows information like addresses, occupations, names, dates of birth and credit histories to be analysed in a matter of minutes rather than days. This means bank accounts can be opened almost immediately, at least in theory, and sets the standard for the speed and convenience of all user experiences in the future.
5. Business accounting
Open banking can be used to significantly streamline the accounting process, which can prove incredibly helpful for smaller businesses. It can do this by automating the collection and categorisation of financial data, helping you to save time and money by negating the need for manual data entry.
There are dozens of great accounting software options on the market that can use open banking APIs to connect directly to bank accounts. Xero is a platform that allows you to import transaction data and streamline accounting practices and integrates with most popular banking platforms.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with.
It’s a solution built on the bones of open banking regulations and infrastructure, and uses technology to offer instant bank pay, allowing merchants to send links quickly and easily to customers and request payment in an instant. It gets you paid immediately using the true power of open banking.
Find out how GoCardless can help you with one-off or recurring payments.