Innovative technology has crept into every aspect of our lives these days. Things that seemed unfathomable just a few years ago have become common knowledge today. Advancement in the internet has enabled businesses to get developed around it. Open Banking API (Application Programming Interface) is proving to be a revolutionary concept in the financial realm.
In essence, Open Banking API refers to the practice of banks securely sharing their customers’ information with trusted third party companies. The idea is to offer the end customers valuable, efficient, curated, customised and quick services. These third parties could be the companies in the Fintech, insurance, health or any other sector that provides additional services to the people enhancing the convenience quotient. Open Banking APIs have been prevalent in Europe for a long time now. The concept has been proven in various markets across Europe. Here is a compilation of the sectors where Open Banking APIs find application globally.
Open Banking in Finance
- Financial Institutions like NBFCs use our data from the banks through APIs to offer us tailor-made deals. The most common example of this is the loans that Fintech companies offer us. Since they are aware of our credit history and salaries from the information shared by the banks, they come up with the amount of money that we are eligible for. The entire process is finished in hours in a paperless way and the loan amount is credited to our account after completing the KYC procedure. This is possible only when banks shared their APIs with trusted third parties.
“Using modern tools for digital transformation like AI, API, Automation, Machine Learning, etc the banking sector could benefit immensely by offering their customers freedom of digital services on their fingertips, as well as increasing their revenues substantially.” – Ashwani Kumar, Vice President, Enterprise Architecture at Coforge
- Business Current Account: At the moment, the website that collects and compares data regarding banking services has to do it manually or by using information from the banks themselves. However, after adopting standard Open Banking APIs, the complex and error-prone data could easily be utilised by third-party companies. The customers will receive error-free information easily.
- Personal Current Account: Similar to the previous point, a standard Open Banking API could share the information of the people with trusted third parties. This will allow such entities to offer customised credit/loan offers to their target customers. The customer doesn’t have to collect documents and queue in the banks to know the eligibility of their loans.
- Each year, the number of people travelling abroad is rising rapidly. Hence, a currency exchange has become a common phenomenon. However, the entire process is lengthy and the banks charge exorbitant amounts of processing fees. But through APIs, private players have come up who enable the entire transaction in minutes with low processing fees. This leads to a hassle-free experience for the customers.
- All the banking services and financial data is operated from one app itself. Your accounts of various banks are accessible through a single app, like G-Pay, PayTM or Jupiter.
- Adopting such technologies is a great way for banks to modernise themselves. People looking for digital experience will be able to make use of multiple banking facilities from the comfort of their homes.
“India’s adoption rate for fintech products stands at 59%, which is the second-highest pace worldwide & this gives not only smart Indian companies and startups but also global fintech companies to enter into this space.” – Praveen Sinha, Managing Director of PinCap, an advanced AI and data-driven Fintech company based in Gurgaon.
Open Banking in Insurance
The insurance sector has also been digitised by modern technology. The use of AI and blockchain has enabled quick processing and claim settlement times by taking over the repetitive tasks of humans. This has ensured that the process remains error-free. Not to mention, the efficiency of the entire sector has gone up significantly. Open banking allows insurance companies to share the customers’ data using APIs to know the financial details. Accordingly, insurance companies could customise various products for customers depending on their needs and financial capabilities. The customers benefit from this because they get the appropriate offer designed just for them sitting at home. All they need to do is connect with the insurance company digitally and know that this is the best deal for them.
Open Banking in Blockchain
Cryptocurrency has been the buzzword in the last year. It is based on blockchain technology which is a decentralised system. The transactions made on this platform are recorded on a distributed public ledger. Hence, the transaction proof can’t be edited or deleted making it secure. Open banking could enable digital currency transactions to be frictionless by sharing the details of sufficient balance in a person’s account, for instance. Banks share this information securely using APIs and customers get to experience the benefits of transacting in digital currency without paying processing fees to banks. Many experts have already concluded that digital currency will be the future.
These are some of the most prominent ways in which financial transactions are benefitting from Open Banking APIs across the world in some of the biggest sectors. The benefits of sharing information from banks to trusted third parties are enormous. Only the customers stand to benefit from this by receiving innovative tools to enhance their experience and convenience.