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The UK government has called open banking a “key step” in both retail banking and the financial technology sector, but what is open banking and how can it benefit your business?
Put simply, open banking solutions allow third parties access to consumer transactions and financial data for quicker, easier payments. Open banking offers consumers a new way to pay and merchants a new way to get paid directly by their customers.
In this blog, we’ll explain the differences between open banking and traditional banking and explore some of the benefits for both businesses and their customers.
How is Open Banking Different from Traditional Banking?
The major difference between open banking and traditional banking is that traditionally, banks exclusively held their customers’ financial data, however with open banking, data ownership is reverted to the customer. The customer then decides who they want to share their data with and they can change their mind and revoke access at any time. Apps that want to access your data through open banking must be registered with the Financial Conduct Authority (FCA) to protect your consumer rights.
In traditional banking, new products and services take a long time to reach their target audience, as a result of paperwork, planning, and testing. Open banking, on the other hand, encourages innovation and brings new financial products and services to the market quicker.
The availability of data through open banking also allows financial providers to better tailor their products and services to their individual customer’s situations and needs.
What are The Benefits of Open Banking for Businesses?
There are many business benefits to open banking, both when it comes to data collection and to accepting payments.
Open banking improves the customer experience and streamlines their user journey, as it removes the need for repetitive data entry of card or payment details. This leads to higher conversion rates in e-commerce, turning your site visits into sales.
Payments via open banking are also more likely to be successful as it requires customers to access their online banking app to approve the payment (unlike card payments, which have a higher failure rate.) Businesses then receive the funds instantly rather than needing to wait several days for them to be processed and clear. Open banking also offers lower fees and no chargebacks, helping to protect the reputation of your business.
What are The Benefits of Open Banking for Customers?
Open banking isn’t just great for business, there are many benefits for customers too. Open banking gives individuals control over their own data and allows people to utilize products and services, such as budgeting apps, for example, that give them a better overview of their finances and benefit their everyday lives.
When it comes to making payments for goods or services, open banking also offers a smoother, more straightforward payment process for customers. It removes the need to reinput data in order to make a purchase and enables quicker refunds too, streamlining the consumer experience.
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