open banking

What is Open Banking? Definition and 2 examples of implementation

Open banking allows financial service providers open access to a customer’s banking history, with the customer’s consent. The access allows companies to make more informed decisions about working with a customer, or about what services to offer a customer based on an analysis of their clients’ financial history. 

The concept of open banking is attractive to customers, businesses and banks alike for a number of reasons, including that it ensures the sharing of information is easy, quick and secure. 

What is Open Banking? 

Open banking is a new environment based on the 2018 PSD2 directive (Payment Services Directive 2), which is European Union legislation that establishes a regulatory framework for open banking. In addition to allowing third party providers (TPP) access to customer data, PSD2 established anti-fraud measures and required customer consent to share that data. 

For financial services, open banking has become a standard. The idea is that as long as customers consent, banks are required to give third party providers access to their accounts. Most often, these are modern technology companies that operate in the finance sector (fintechs), though other banks are also involved.

How does it work?

Open banking providers use open programming interfaces (API), which, simply, are the rules that dictate how different applications communicate with each other. A provider connects to the banking API and reads financial data from the bank account. APIs facilitate the request between any service that needs a customer’s information, and their service provider.

Benefits of open banking for businesses

A big draw of open banking is the convenience of the all-online process. Kontomatik’s widget is embedded on a company’s website, meaning potential clients can complete all the necessary authorizations and verifications that come with applying for a product such as a loan, without having to even leave the site. It’s a far cry from other processes, some of which force clients to waste unnecessary time getting physical copies of their account history. 

Additionally, the information a business can receive about their potential client is much more in-depth with open banking. Clients can send all of their financial information from all of their accounts. With help from Kontomatik, which labels transactions by type, businesses can get a detailed picture of their potential client’s spending habits; the client’s full name; the dates of transactions; and details on who received a transaction. This allows a company to make more informed choices about who they take on as a client.  

It also allows businesses to make more personal decisions, because they have a better understanding of a client’s finances. Businesses are able to tailor a loan offer or rental agreement to meet what a client is reasonably able to afford. Kontomatik’s scoring system, which assigns a percentage to each client based on their ability to repay a debt, makes the process of personalizing an offer even easier. 

That helps cut costs, too, because clients are less likely to default on payments, meaning businesses are less likely to find themselves shelling out tons of money on lawsuits or debt collectors. Companies also save money by not hiring specialists, and instead using Kontomatik, which has a built-in team of analysts.

Open banking is a boon to companies from a purely practical standpoint, too. It increases the speed with which businesses get access to a client’s banking information, making a process that once took a long time to complete into a nearly instantaneous step. 

The risk of human error and the risk of data manipulation are reduced greatly because the process is fully automated. 

What do customers gain from this new innovation?

Clients tend to love open banking for many of the same reasons companies do, namely, convenience. 

Open banking provides a 100% online alternative that makes the typically laborious process of applying for a product or service such as a loan , much more efficient. There’s no more need for clients to fill out paperwork or retrieve bank statements; they can complete the financial portion of an application in a few clicks. 

It’s a bonus that the process happens immediately, reducing the once days-long chore of gathering financial information, to just a matter of seconds. 

The personalization that open banking creates is a huge draw for many people, too. Clients who have financial concerns can be rest assured that the business they’re working with can tailor an offer to meet their needs. 

One of the biggest attractions for clients when it comes to open banking is the guarantee of security. Kontomatik is authorized to perform our services by KNF in Poland and the Bank of Lithuania. Additionally, we operate under strict PSD2 directive, which stipulate that, among other things, a client must consent in order for any data to be shared. 

Examples of open banking implementation

Smartney

Smartney is part of the French Oney Bank Group, which has been operating in the banking sector for over 30 years, currently employs 2,500 people in 11 countries and serves 7.6 million customers around the world.

As one of the fastest growing fintechs in Europe Smartney has made great use of open banking solutions when considering clients for a loan. Thanks to the use of this technology and collaboration with Kontomatik, Smartney is able to verify their clients in an average of 11 seconds. Customers too, seemed to love the more convenient process, with 67% of Smartney clients choosing Kontomatik for their verification process out of all available methods. 

CreditStar

International consumer finance company CreditStar also said working with Kontomatik helped them more efficiently verify and onboard new clients. The company said Kontomatik’s transactional labeling service gave CreditStar the ability to easily and reliably analyze a client’s creditworthiness, thus keeping their portfolio desirable.

The system was also attractive to CreditStar’s clients, who said the onboarding process was much easier because they were able to quickly verify their bank information and immediately learn whether the verification process was successful.    

Check out our identity or income and spendings solution to learn more about how Kontomatik helps companies verify their clients’ information so companies can make informed decisions about their customers.

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