Ever since the European Union passed the Payment Service Providers Derivative (PSD2) related to Open Banking in 2018, 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 FinTechs financial service providers who provide innovative products or services for consumers.
These products and services 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.
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.
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 empowers consumers with easier access to their account information. With open banking APIs, banks and 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 or financial service providers (FSPs) to view and manage it within a single platform.
But why does open banking matter so much?
Consumers must choose whether or not to share their bank data with third party applications and companies to receive tailored banking offerings and recommendations for an overall better way to manage finances than ever before. This emphasis on giving consumers personal control over their financial data signals a major evolution in how people will approach banking systems in the coming years.
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.
3 Incredible Open Banking Use Cases
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 shop 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 life cycle 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 data responsibly and with respect for their operations.
Envestnet | Yodlee is committed to the responsible handing of customers’ financial data so we can protect them from fraud and misuse on the open banking network. All of Envestnet | Yodlee’s financial data solutions are open banking ready, and offer industry leading practices for data security, regulatory compliance, and privacy for accessing and handling personal consumer credentials and financial data.
As open banking starts impacting more industries outside the financial sector, data security and privacy will remain top concerns for both regulators and consumers. Partnering with Envestnet | Yodlee can give your business and your customers the peace of mind they need with a FinTech partner they can trust to only deliver the most secure open banking solutions for their operations.