Open banking has brought about a wave of FinTech innovation that delivers more transparency and personalised products to customers. Yet, RegTech firm PassFort said there are still hurdles to overcome.
When it comes to how people use and move money, opening access to critical banking data has given impetus to innovation.
The industry has seen a new wave of FinTech’s, bringing better financial transparency, improved services, and multiple other benefits to customers.
Recent work by RegTech PassFort highlighted that despite the wealth of opportunity that this represents there are still issues to resolve, including global compliance and unified KYC frameworks.
Open anking is an innovative practice where banks share consumer data in standardized and secure forms with authorized third-party organisations, such as FinTech’s. Open banking allows third-parties to access that rich data source from banks through application programming interfaces (APIs) to build new and creative financial products that are then offered to consumers.
According to PassFort, open banking has changed the financial services market in numerous ways. Firstly, it allows customers to benefit from a broader range of financial services products, offering better access to personalised and customised financial products.
Customers are not the only ones to benefits. PassFort said that all parties, including banks, FinTech firms and account owners, benefit from increased data visibility as a result of open banking.
PassFort said that by Combining data from multiple sources can help providers create a deeper understanding of every customer’s needs by leveraging data to build more personalised products.
The ability to offer more personalised products is not confined to financial products. PassFort said banks and third-party providers can offer personalised insurance products through mobile and online channels using data available through open banking. The spending insights from the aggregated financial data can ensure consumers get the most suitable insurance coverage.
Moreover, FinTechs can use open banking data for identity verification to make better, faster decisions.
PassFort said compliance processes are expedited and credit, for instance, can be made more accessible more quickly. The know your customer or KYC process that verifies a customer is who they claim to be can help FinTech’s build a faster picture of risk associated with an individual, which then informs onboarding decisions or upsell opportunities.
However, there have been a few complications of open banking.
PassFort highlighted that there has been a lack of sufficient compliance standards. While Europe and the UK have introduced clear open banking compliance standards, other countries, including the US, have not regulated or standardised open banking.
In addition, PassFort added that data security remains a crucial challenge for open banking integration. Banks and FinTech developers must continue to ensure financial apps are secure while minimising the risk of any vulnerabilities
In spite of this, PassFort said the future of open banking looks bright, especially if all parties concerned can fully adopt the data-sharing integration necessary for success.
FinTech’s could even become the new giants of the financial services sector through increased provision of services to underserved consumers and access to customized or personalised services, the RegTech said.
Another future scenario is that merchants help banks and FinTech’s capitalize on open banking data to spur a retail banking revolution. Merchants, shopkeepers, and traders can use targeted marketing and loyalty schemes to boost margins, improve sales, and increase overall performance while providing fully integrated financial products and services to customers.
Open banking has immense potential to improve financial services’ revenue streams and customer reach, PassFort concluded, but only with full adoption, consent from all parties –including customers themselves – and unification around identity verification and compliance standards.
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