The Open Banking Opportunity at the Intersection of Data and Payments

Open banking may be seen as a buzzword in the banking and payment industries.

It promises new products and innovations that everybody can enjoy, namely banks, FinTechs, consumers and merchants. But open banking is much more than one product or service; it is a choice (regulatory or market driven) that allows a whole new financial ecosystem to flourish.

The list below shows that the use of open banking goes beyond payments, and many companies can benefit from having access to troves of financial consumer data. For more information on what data banks need to share or how this data is accessed, read our previous entries in this open banking series.

Personal Finance

Personal finance apps can cover a wide range of services, from budgeting apps, market comparison apps, debt advising apps and so on. These types of applications were part of the initial wave of innovations as third-party providers (TPPs) could access consumers’ data from their banks and provide personalized offers to their clients. Open banking helps improve the relevance of these services to consumers as more and more data is harvested.

Consumer Lending

Banks are the main beneficiaries of open banking in lending, as they usually don’t have the obligation to share data on loans or credits with TPPs. Open banking offers banks tools to create creditworthiness profiles of current and prospective clients to accept or reject cases faster. Additionally, it reduces administrative costs as more and more data are processed automatically, and, in some cases, even machine learning processes can process the ever-growing data.

Yet, a new beneficiary of open banking just came into the field: buy now, pay later (BNPL) companies. While BNPL could be placed between payments and consumer lending, without access to consumers’ financial data and ultra-fast credit checks, BNPL wouldn’t be possible.

Mortgage

Like consumer lending, open banking offers financial institutions (FIs) more information about potential clients and faster application processes. It also offers a reduction in administrative costs as fewer steps are needed to fill in applications and to review them. For mortgage brokers, open banking also offers them the possibility to match lenders and buyers more easily as they have access to more information about both parties.

Insurance

Insurance companies can now provide more personalized offers to clients. Access to consumers’ data can offer a better picture of the client’s behavior and financial situation. This allows the company to adjust its premium or to offer rewards to clients. However, insurance companies are likely to benefit even more from the second wave of open banking innovations. If companies could access more data from clients, such as location or behavior patterns, as may be the case in the future, this would allow them to further customize offers to each individual risk profile.

Wealth Management and Investment

If personal finance apps were part of the first wave of open banking innovations, wealth management and investment platforms are probably part of a second wave. In the last two years, there has been a significant increase, especially in investment apps.

Open banking allows easy onboarding of investors by removing unnecessary checks or manually uploading documents, as these apps have access to financial data and credit checks. It also offers apps and consumers an easy and secure way to transfer funds from bank accounts to platforms.

Cryptocurrency and Digital Assets

Investment in cryptocurrency and digital assets is not exactly open banking, but how mainstream could crypto be without consumer identification and transfers of fiat money? This is an example of how a different technology and traditional payment companies can benefit from the open banking innovations, namely onboarding automation, know your customer (KYC) processes, transaction monitoring, anti-money laundering (AML) and payments.

Retailers, Utilities, Telcos, Gaming

In most of the examples mentioned above, the beneficiaries are companies in financial services. However, more and more companies in other sectors are enjoying these benefits too. For instance, retailers can see higher volumes of commerce thanks to BNPL and new methods of payments/checkout, and gaming companies can offer instant payments to consumers and faster onboarding processes. Alternatively, utilities and telecommunication companies can benefit from fast credit checks to avoid bad customers.

What’s Next?

Open banking allows TPPs to access data on payment accounts, thus, the next use cases are likely to be linked to payments, like embedded payments or instant payments, and most of the companies involved in eCommerce may benefit. However, as the legal mandate to share data extends (or the market demands), it may include other sectors, such as health services, social media or mobile ecosystems.