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In the financial world today, open banking is the new buzz phrase. After taking the European economy by storm, open banking has now arrived in the United States.
New technologies are transforming the way the banking industry operates by creating more efficient and cheaper financial services. Moreover, open banking is revolutionizing the banking industry. With open banking, third-party providers (TPP’s) are being allowed to use your banking information to help you save money, borrow more easily, and pay efficiently.
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So what exactly is open banking and why does it matter for you? In short, this new way of banking can change the way you do business, pay your bills, and finance purchases.
Facts About Open Banking
Simply put, open banking is the process of giving third-party service providers access to your financial information. It’s an innovative banking policy that allows third parties to build apps and services around the information that financial institutions like banks store. It is the sharing of information such as credit limits, account balances, and spending or earning histories between financial institutions and other parties with a monetary interest in consumers.
Traditionally, banks secured and closely guarded all transaction and account data for their customers’ privacy and security. Account and transaction information was some of the most secure personal information around.
However, financial institutions and technology companies have acknowledged the advantages of opening data collection and sharing between third parties in the interest of their customers. This provides trusted third parties seamless and quick access to information.
How Open Banking Works
With these new banking solutions, third-party services can quickly acquire aggregate data from many financial institutions. It is as simple as data sharing. An app developer could access your checking account to help you track all of your spending and earning habits over time. Open banking will also let a price comparison site access your banking information, so it can tailor the products it suggests to what you can afford and what you typically spend.
While not legally mandated in the United States, like it is in the UK, American banks are increasingly volunteering to share data for the benefit of their customers. This could make it easier to budget and save as you have a clearer view of how much money you have. The obvious benefit is that payments could be made in seconds, and all from one place, making everything more convenient.
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Ideally, open banking will result in a better experience and more financial opportunities for consumers. This is because consumers will be better able to take control of their financial information. You may already use services that open banking has improved.
For example, third-party personal financial management tools use your bank account information to help you track spending and reach other goals. Open banking solutions allow customer the financial freedom across platforms that enables them to make their various accounts work for them.
Why Open Banking Matters
These new banking efforts are changing the game for banks, regulators, and third-party partners. As such, consumers should eventually have more options for managing their money, borrowing, and making payments.
With consumers having more financial freedom, banks themselves could decide to improve the services they offer. You can also expect to see more third-party tools. App developers will have an easier job of helping you take control of your spending. Getting or refinancing a loan may also become easier as there will be no manual gathering and compiling of information. It can all be done in one place with open banking solutions.
Business Transactions Will Become Easier
As far as the business world is concerned, life will also become a little easier with open banking. When a small company needs a loan or a line of credit, lenders may want to review the books. Instead of painstakingly submitting manually generated reports, lenders can pull all the data they need from bank and accounting systems. Businesses may also benefit from easier and less expensive accounting processes with integrated systems.
Banking that used to be tedious and costly is changing, thanks in part to open banking. Traditional banking has now shifted to offer better services, reduced fees, and easier processes. Open banking is changing the way we conduct business and creating financial power and freedom for consumers.