Open Banking
Open banking is when banks open up their data and share it securely with other companies through APIs (that’s fancy tech talk for a way for systems to talk to each other). So why would banks want to do this? Well, by law they have to in some countries.
Open Banking allows smaller fintechs to compete with big banks by offering you slick new services. Like budgeting and money management apps that aggregate all your accounts in one place. Or finding you better deals on loans based on your full financial profile. Or giving really personalized money advice ( remember Cleo?) tailored to your habits.
The key benefit for us is more control and better tools. Open banking allows fintechs to build services based on our real needs, not what banks think we want. And by capitalizing on our data, we can make smarter money decisions earlier in life.
Don’t worry security is taken seriously too. The user’s explicit consent is required before any data access. The Application Platform Interfaces (API) used are encrypted so your information stays safe.
In 2018, United Kingdom unveiled a standard for open banking to flourish: It basically set one open banking standard for the big banks. They made it a regulation that everyone had to adhere. This kept things simple instead of unnecessarily complicated like a certain country (I am looking at you U.S 👀) Mandating one way to do things meant no confusion for the payments game in the UK. They cleared a straight path for open banking to work.
Although, today on October 19th, the Consumer Financial Protection Bureau (CFPB) proposed a long-awaited rule that aims to accelerate the shift to open banking in the US.
It will be extremely exciting to see new fintechs pop up because of this open banking system and if you are thinking of starting a fintech, but need it to be US based? Well you can register up with Doola here!
Do let me know what you think about Open Banking and how you think it will change financial services in the United States!
Originally published at https://aatish.substack.com.
