As a concept, open banking allows banks to share financial gathered from customers to third-party service providers (TTPs) in a bid to offer access to a wider range of next-gen financial services. Traditionally, banks have had control over customers’ financial data; however, open banking allows banks to share the data with other financial service providers or third-party providers for the benefit of the customer.

As the global economy continues to evolve, open banking is gaining fast momentum as it allows for faster and more secure transactions anywhere in the world and it gives consumers more opportunities by using third-party providers to manage their finances.

For the consumers, open banking offers to provide a wider set of choices, better services, and frictionless experience. For example, popular online portals such as Amazon, Google or Facebook are being used to send money or gifts securely to friends with a simple click or swipe without the hassle of logging into a banking app or portal.

Benefits are multifold

Open banking is a driving force of innovation in the banking industry - By relying on networks of third-party providers instead of centralization, open banking can help financial institutions or banks to securely share their financial data with other financial institutions or third parties. For example, open banking APIs can facilitate the process of switching one bank's account service to another bank's services. The API can also look at consumers' transaction data to identify the best financial products and services for them, such as a new savings account that would earn a higher interest rate or a different credit card with a lower interest rate.

Open banking could potentially add new revenue streams while expanding the customer base too. It can create revenue-sharing ecosystems, where incumbents give access to third-party-developed services while profiting from a subscription or referral basis.

Explicit permission from customer

Open banking allows third-party payment providers and other financial service providers to access the personal and financial information of the banks’ customers. Before this can happen, the customer must grant explicit permission for sharing their information, usually via an online form or app incorporating a terms and conditions agreement. The third-party providers can then access the relevant shared data through

The APIs can process transactions from one bank to another without the consumers having to take in the past. APIs can also look at a consumer’s transaction history to help identify relevant products and services to personalize the customer experience.

Data Integration

There are generally two ways to accomplish data integration: Application integration or data virtualization - physical integration enables the APIs to call directly to the backend systems in a secure way. On the other hand, banks can use an integrated virtual layer of customer data instead of physically combining all customer data sources. Data virtualization allows turning dozens of independent data sources into one virtual data warehouse with nearly the same performance as a single system.

Adoption increasing globally

Some countries, such as the EU, the UK, Australia and other APAC countries, have been the driving force behind the adoption of open banking and the acceleration of innovation in the banking industry. The regulators have also opened up to the idea of using open APIs and allowing authorized TPPs to access customer-permitted data. In countries with less developed open banking regulations — including the US, Japan, and Canada, the opening of banking services is likely to gain momentum, driven by customer demand and competitive pressure.

Open banking could potentially add new revenue streams while expanding the customer base too. It can create revenue-sharing ecosystems, where incumbents give access to third-party-developed services while profiting from a subscription or referral basis.