We live in a world where a few swipes on a smartphone enable immediate access to bill payments, mortgage comparisons, credit card payments, direct debits control, and more. These mobile apps are powered by our personal financial data and evolve with the changing needs of the marketplace.
As the industry increasingly embraces open banking frameworks, financial institutions are eager to collaborate with FinTech companies to enhance customer experiences, create new revenue streams, and build a sustainable service model.
In the first half of 2020, new solutions continued to roll out with the support of global banks. But before we get ahead of ourselves, let’s define it.
What’s open banking?
Open banking is a system where financial institutions share consumer data securely with authorized third parties like FinTech startups (with the customers’ permission). This rich source of data helps identify opportunities to develop applications and services to make banking more accessible and fluid.
This approach negates the need to update legacy systems immediately or build internally. Since the European Parliament implemented the Revised Payment Service Directive (PSD2), open banking has gained traction across the board.
In the UK, the regulation allows bank account data to be shared through an integration technology called Application Programming Interfaces (API). With the customers’ permission, data can then be shared with third-party companies like credit reference agencies, challenger banks, and FinTech startups to serve our individual needs better.
Once non-banking FinTech solutions were adopted rapidly, consumer attitudes and demands changed completely, and traditional banks had to adapt or risk obsolesce. API-driven open banking solutions helped bridge the gap between legacy banking systems and new opportunities to deliver enhanced and innovative customer experiences.
In other words, open banking helps remove barriers between competitors, enabling efficiency and innovation across the financial world.
But how exactly are FinTech companies benefiting from it? Let’s take a look.
Benefits of open banking
1. Enable easy access to financial operations
As alluded to above, the most significant benefit of Open APIs is the fact that it makes banking easy. FinTech companies created revenue streams by building functions and features, based on customer data, to make banking extremely easy and highly user-friendly.
They brought access to financial products and money management right to your smartphone. For example, FinTech mobile apps enable quick, easy access to direct payments, a clear view of one’s finances, financial product comparisons, and more.
Are you looking for a software development partner to help bring your FinTech idea to fruition fast and cost-effectively? Get in touch to discuss how Evolve can help!
2. Affordable cross-border payments
FinTech startup TransferWise is an excellent example of a company taking advantage of an opportunity to disrupt foreign exchange management operations and cross-border payments.
In recent years, TransferWise has grown considerably to develop a new global payment infrastructure that’s built on the foundation of cost optimization, transparency, and open banking.
Started by two Estonians based in London (who worked for Skype and Deloitte), the startup was born to serve a personal need. Monthly, they both exchanged and transferred money the traditional way, tired of the hefty fees and the time it took to achieve it.
Today, their billion-dollar business allows people to transfer money within minutes with considerably cheaper exchange rates.
3. Leverage nascent technologies
Open Banking APIs also allow FinTech startups to use emerging technologies like artificial intelligence, biometrics, and the blockchain to innovate and better serve customers.
Our client Zeux, for example, leverages these nascent technologies to combine both crypto and fiat worlds effectively. In this scenario, users can invest in both traditional and crypto investment products seamlessly.
Zeux is using Open Banking to:
- Provide a regulated platform from which customer data can be obtained to process financial services, and
- Make it easier and more convenient to initiate payments and reduce the delays for their customers.
As it’s an integrated solution, customers can make mobile payments, decentralised payments, and access multiple bank accounts. Having all this at your fingertips on a single platform goes a long way to boost customer experiences.
Challenges of using Open Banking for FinTech development
According to Deloitte, FinTech founders and banking leaders need to reimagine present processes and come up with “big, bold” ideas. To achieve this, they’ll have to actively engage in the ecosystem, hyper-scale their transformation (as a multiyear process), and build robust alliances and partnerships to achieve “real change.”
To accelerate progress within FinTech, banks need to fortify their core foundation on multiple dimensions. This includes (but not limited to) data management, risk management, talent acquisition (and management), and technology infrastructure.
On the technology side, for example, the industry is plagued by pervasive technical debt and a plethora of legacy systems. So when we’re talking about digital transformation to accommodate open banking protocols, it presents a massive challenge.
At the same time, financial institutions, especially banks, need to manage sensitive customer data better. This is the only way to achieve the true potential of modern banking driven by technology investments.
This continues to hinder development in the industry, but steps are being taken to fix the data problem and eliminate technical debt before making radical changes.
How do FinTech companies respond to these challenges?
To address these problems effectively, there’s a dire need for expert technology professionals. However, an extensive new Korn Ferry report finds that by 2030, more than 85 million jobs could go unfilled because there aren’t enough skilled people to take them, and this will cost global industries over $8.5 trillion.
With the ongoing global tech talent shortage, access to highly skilled professionals is complicated and sometimes out of reach. The Coronavirus made it more complicated with continued uncertainty and other related restrictions.
FinTech startups primed to take advantage of the opportunities presented by Open Banking need to attract significant investment to compete in a fierce labour market or get creative (or both).
If you don’t have access to the necessary skills in your area, one way to do this is to partner with an established third-party software development provider (just like Zeux did in the example above). In this scenario, they will work closely with you from concept to deployment of your mobile application.
If you already have staff on-premise or working from home (at the moment), you can support them by leveraging an extended team following a staff augmentation model. This approach helps fill the talent gaps and address persistent problems like technical debt, legacy systems, and hurdles to total digital transformation, cost-effectively.
Are you looking to leverage Open Banking for your FinTech software development? Find out how we can help you achieve your business goals faster and more cost-effectively!