It’s no secret that Open Banking is on the rise across Europe – and the world. There are now 7 million users in the UK, according to Forbes. Statistics also show that the number of open banking users is increasing around the world by 50% per year. (Read more of our Open Banking statistics here).
But why is it becoming such a popular practice? What is the benefit of open banking?
Before we answer that, we need to understand what open banking is.
…Open Banking lets companies like lenders look at a client’s banking information if the client gives consent (that part is key). That information includes the account balance, the client’s name, their monthly spending and more. With all of that information, the provider can decide what kind of service to offer the client.
Yes! Open banking is beneficial for users because they get more personalized services.
Take the example of applying for a loan..
After you, the user, agree to share your bank information, a loan company can examine your spending habits and tweak your loan offer.
For example, the company could decide that you need a lower interest rate. Or they could decide that you need a longer span of time to pay off your loan.
Depending on the client's needs, non-interest costs can also be adjusted. What do they mean? In addition to margins and commissions, there may be fees associated with the preparation of the loan agreement and its granting, customer service, and deferral of repayment.
The options for personalizing loans are endless!
Not only that, but open banking saves tons of time. You no longer need to write long, annoying loan applications and gather bank statements. Instead, you can complete the whole process in a few short clicks of the mousepad.
You just agree to share your data, then provide your bank information, and the providers do the rest!
More good news: Open Banking is great for companies. In fact, we can list up to three main advantages just like that
The first major benefit is convenience and speed. Just like open banking saves time for clients, it also saves tons of time for companies. They no longer need to go over lengthy PDFs of bank statements. They also no longer have to accept paper documents in person. Instead, they can use an open banking provider (like Kontomatik), which will review a client’s bank history for them.
That way, the company can get simple answers about how reliable a client is when it comes to repaying loans.
Another major benefit of open banking is fraud reduction. Open banking makes the process of verifying a customer’s identity both easy and secure. Before open banking, the method of verifying a client’s identity, in some places, included looking at physical bank documents, which can be tampered with easily.
But with open banking, information about the client (name, address, financial history etc.) comes straight from the bank. That leaves no room for tampering.
Finally, a company gets much more complete information about a client with Open Banking than it does with traditional methods. That means a company understands each client a lot better thanks to open banking. Understanding a client’s needs and limitations means better company-client relationships overall.
In short, Open Banking has many benefits from convenience to personalization to fraud reduction. It’s the best choice for all involved.
For more updates and analysis on open banking, follow Kontomatik on LinkedIn
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