When you hear the term “open banking”, what comes to mind?
For some, the term might evoke images of boardrooms and high-powered financial CEOs. For others, it might bring up thoughts of tech experts on the cusp of a new world of digital finance.
But in truth, open banking is not reserved just for experts in the fields of finance and tech, it affects everybody. Better yet, open banking benefits everybody: from the average user applying for a loan or renting a piece of expensive equipment, to small business owners and lenders, looking for a way to verify customer finances and offer faster, easier services.
For a deeper look into the positives about the growing field, we’ve put together a list of everyone who benefits from open banking.
Before looking at the upside of open banking, it’s important to establish what open banking is. Essentially, 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.
The first person who benefits from open banking is the client or the user. Someone who is using open banking to help apply for a loan, for example, can see enormous benefits. Because the lender has a more complete overview of their financial history, a client can expect to see more personalized services which are tailored to fit their exact, specific needs (for example, they might see a lower interest rate, or a longer span of time to pay off that loan).
Not only that, but the user experience itself is made simpler. Instead of spending time gathering complex financial documents to apply for a loan or apply to borrow equipment, all the user has to do is complete a secure and safe log in to their bank account as part of a loan application and the bank and lender will do the rest!
Just as clients can benefit from the ease and convenience of open banking, so can lenders. When a client agrees to share their financial data with a lender under open banking, the lender is able to view much more data about that client than they would have before open banking. They can see different types of transactions, spending habits, current liabilities and more. This greater wealth of information means they’re able to make much more informed decisions about which clients to work with and how.
Not only that, but the whole process is easier for lenders, too. They don’t have to shift through physical copies of documents to access the information they need. Instead, the information is all there and easily accessible.
Understanding the data is made even easier thanks to….
The development of open banking opened the door for a whole new world of innovation for fintechs (short for financial technology). Fintechs (like Kontomatik) have developed solutions that can compile, label and analyze financial data for companies like lenders. That means when a lender receives a client’s financial history, they can work with a fintech to make sense of that data.
Some fintechs – Kontomatik included – can even score the client based on the financial history, returning a grade for lenders which tells them just how creditworthy a potential borrower is.
In short, thanks to open banking, fintechs can continue to innovate and develop new digital technology as the financial sector moves closer and closer to the promise of open finance.
For more updates and analysis on open banking, follow Kontomatik on LinkedIn
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