Open banking is a financial services term that refers to the use of open application programming interfaces (APIs) to allow third parties, such as fintech companies and other financial institutions, to access financial data and services provided by traditional banks. This allows for greater competition and innovation in the financial services industry, as well as increased choice and convenience for consumers.
Third-Party Provider
An open banking provider, also known as a Third-Party Provider (TPP) is a company or organisation that is authorised to access financial data and services through open banking APIs. These providers can offer a variety of services, such as account aggregation, payments, and budgeting tools, as well as financial advice and lending.
Account consolidation
One key benefit of open banking is that it allows consumers to easily view and manage all of their financial accounts in one place. This can be especially useful for those who have accounts with multiple banks or other financial institutions, as it eliminates the need to log into multiple websites or apps to view account information. Additionally, Open Banking enables the customer to share their financial data with a third party to get a more rounded view of their financial situation. This can be helpful in finding better credit terms and other financial products.
Driving innovation
Another benefit of open banking is that it can drive innovation and competition in the financial services industry. By allowing fintech companies and other third parties to access financial data and services, open banking creates opportunities for new and innovative financial products and services to be developed. This can lead to greater choice and better value for consumers, as well as increased competition and lower prices for financial services.
Open banking providers are regulated by the relevant authority, like FCA here in the UK, which is responsible for ensuring that all open banking providers adhere to strict security and data privacy standards. To become an open banking provider, a company must go through a rigorous application process and be authorised by the relevant authority. This includes being vetted for data security, governance, and ability to comply with the regulations.
Control retention
It is worth noting that open banking providers are only able to access the financial data and services that a consumer has explicitly consented to. This means that consumers retain control over their financial data and can revoke or modify their consent at any time. Additionally, providers are obliged to keep the data on the highest security standards and usage of the data is restricted by law.
In conclusion, open banking is an innovative financial services concept that allows third parties to access financial data and services through open APIs. Open banking providers, or Third-Party Providers (TPP), can offer a wide range of services, including account aggregation, payments, budgeting tools, and financial advice. By providing consumers with greater choice and convenience, and driving innovation and competition in the financial services industry, open banking has the potential to improve the overall financial landscape for customers and providers alike.
