In this blog, we’ll explore Open Banking examples in and out of the banking industry that will continue to shape the future of banking moving forward. Ever since the European Union passed the 2018 Payment Services Directive (PSD2) providing a legislative and regulatory foundation for Open Banking, banks and financial institutions have kept a close eye on how banks and consumers have adapted to the rules and regulations. Under PSD2, consumers are given the opportunity to share their financial account data with third party institutions, typically FinTech financial service providers who provide innovative products or services for consumers. These open banking connections also enable traditional banks to accelerate digital banking transformation initiatives and collaborate with FinTechs to deliver the digital banking solutions customers demand.
These products and services utilizing aggregated account data can be highly personalized, and help consumers manage their personal finances, procure loans, get investment and retirement advice, and a number of other use cases. Open banking can be even used outside of the banking industry to give consumers the option to receive relevant offerings for a variety of other services.
What Is Open Banking and Why Does It Matter?
So what is open banking again?
Open banking is the sharing of financial data via application programming interfaces (APIs) that empower consumers with easier access to their account information. With open banking APIs, banks and financial service providers (FSPs) are able to connect their systems to start data sharing back and forth on what's known as the open banking network.
Open banking also gives consumers the ability to pool all of their financial data from multiple banks and FSPs to view and manage it within a single platform.
But why does open banking matter so much?
Consumers may also choose to share their bank data with third party applications and companies to receive tailored financial service offerings and recommendations for an overall better way to manage finances than ever before. This emphasis on giving consumers personal control over their data from bank accounts and credit cards signals a major evolution in how people will approach banking services and systems in the coming years.
Open Banking API Examples
Through open APIs, FinTechs and banks are also able to create more exciting and innovative products that will continue to improve and transform the customer experience - not just in the financial services sector, but across other industries. Open banking data sharing powers the delivery of personal finance management apps that offer a complete picture of consumers’ financial health along with data-driven insights and advice. Open banking APIs also enable FinTechs to add payment services, price comparisons, and other useful features to apps to increase convenience, improve consumers’ financial situations, and drive new revenue streams.
3 Incredible Open Banking Use Cases
The opportunities to innovate and improve consumers’ lives with open banking are endless. Some of the hottest open banking use cases include digital passports and identities, real estate solutions, highly targeted advertising, and more. Here are a few of the ways open banking is transforming different industries:
1. Your Phone May Become Your Passport
Undoubtedly the most exciting use of open banking outside of the financial world, the Known Traveler Digital Identity Program (KTDI) being developed by The World Economic Forum would empower consumers to use their mobile phones as passports to verify their identities.
Think about it; the same type of information and documentation needed to open a new bank account or credit card is the same information required to travel or obtain a passport. Through open banking, only consumers authorize how and who can use their financial information to provide a service, so private companies could start catering to this travel need by offering consumers to use their digital identities for travel credentials and keep people moving between borders more seamlessly than ever.
2. Perfectly Tailored Apartment and Home Hunting
Open banking can reimagine how people look for their next apartment or find their dream home. Instead of having to go through expensive real estate companies to determine the details of the property you’re looking for, an open banking enabled application could be used by secure service providers to offer consumers apartment or home options based on that consumer’s spending preferences, or transactional data.
Once a consumer authorizes to connect their data to a service provider’s API, housing recommendations can be made that take into account a consumer’s holistic financial history to present them hyper-personalized housing options that will match the criteria they’re looking for. Even where a consumer shops regularly can inform these catered options, and shows how granular recommendations not just for housing, but in other industries will be in the near future.
3. More Precise Ad Targeting
If one thing is absolutely certain, consumers do not like interacting with digital ads, and have learned to almost completely ignore them where they see them most. Open banking enabled account data can offer digital marketers another way to learn how to best service their consumers.
Digital marketers can use open data to their advantage by predicting where consumers are in both their lifecycle and buyer’s journey so they can present them only the most relevant ads and information they’re actually looking for or in need of.
The Future of Open Banking With Envestnet | Yodlee
Envestnet | Yodlee is always keeping a close eye on further open banking trends, developments, and new use cases in and outside of banking that will benefit consumers. As the market leader in financial data aggregation, we partner with banks, FSPs, and businesses to gather customer data responsibly and with respect for their operations.
Envestnet | Yodlee is committed to the responsible handling of customers’ financial data so we can protect them from fraud and misuse on the open banking network.
As open banking starts impacting more industries outside the financial sector, data security and privacy will remain top concerns for both regulators and consumers. Envestnet | Yodlee can give your business and your customers the peace of mind they need, as a FinTech company partner they can trust to deliver secure open banking solutions for their operations.