Open Banking Pushing Onward and Upward

As the world discovered during COVID-19 lockdowns and restrictions, finding new ways to do common tasks is sometimes a necessity. This includes financial transactions, from paying a neighbor for handmade masks to refinancing a mortgage.

Thankfully, a number of innovative companies have stepped up to meet the financial needs of the home-bound by developing mobile and browser-based applications to smooth related transactions and processes.

With the fast-evolving concept of open banking, innovators and their traditional bank partners are helping propel the financial world beyond the pandemic's urgency and into the future.

Undoing long-entrenched procedures

Springing from the European financial system, open banking has become more common in the US in the past couple of years. It surged during the pandemic along with an interest in financial-related apps and contactless payments.

Built on an application programming interface, more commonly known as an open banking API, the technology facilitates connections between your bank and the app on your smartphone or webpage. For example, to offer the popular Zelle® peer-to-peer payment system, banks must provide an API that grants Zelle® access to customer accounts on both sides of the transaction.

It's critical that all such systems are safe and secure for consumers and that they're continually working to shield essential information. App developers are just as responsible for protecting customer data as the banks.

Current open banking features

Given the speed of the marketplace's evolution, many banks have turned to innovative financial technology firms to embrace the open banking movement. Ultimately, collaborating on API access and tools with a nimble partner is more attractive to most banks than having to develop technology from scratch.

Through such connections, many institutions are already offering open banking services, with features including:

• Quicker, cheaper payments – Pulling money directly from your bank account, digital payment apps, such as Cash App, sidestep the costs involved with a third-party payment processing company.
• Complete financial profiles – Apps, such as Mint, provide consolidated real-time snapshots of balances, payments and deposits across all of your accounts.
• Streamlined lending decisions – The digital compilation of data makes the loan application process easier and speeds back-end processes as well with apps, such as Upstart.
• Smoother business banking – Seamless payment processes, deeper credit insights and heightened identification capabilities from apps, such as Yodlee, can benefit companies large and small.

Future changes in financial services

As banks, developers and customers grow increasingly comfortable with the marriage of tech and personal finances, the financial services arena will likely continue to evolve. And given how much it's changed during the pandemic, it's fair to assume big changes are coming, built around enhancements including:

• Increased personalization of the customer experience
• Greater flexibility in functionality
• Heightened seamlessness in transactions, even among complex ones
• Continued creativity in offerings
• Greater accessibility, especially to groups that haven't traditionally been part of the financial system

Consumers love the tech-enabled functionality of open banking and its range of convenient perks, from automated reminders on account balances and scheduled payments to environmentally friendly paper-free processing.

The digital approach resonates with a wide range of banking customers. For example, mobile banking has become popular for millennials through baby boomers, and it will likely be the default for younger generations. Keeping up is crucial, as the fast-moving developments will likely continue to change the face of banking in the weeks, months and years ahead.