If one idea encapsulates a significant trend in the current business environment, it’s “openness.”
Society is placing a greater value on transparency and “open” approaches. Even Microsoft Corp., the long-time defender of closed software, under the leadership of CEO Satya Nadella, has proclaimed they are “all in open source.” One industry where being open is of particular importance is banking and finance.
Open banking is the structured sharing of data through an application programming interface, or APIs. These APIs allow data to move freely from financial institutions to third-party consumer finance applications. Customers initiate and consent to data sharing, establishing a secure way to grant access and extract financial information from the financial institution.
Open finance, on the other hand, is a broader term. It extends open banking to include customer data access for a range of services beyond the banking industry — to retail stores, hotels, airlines, car apps and much more.
Open finance is popular in Europe and is now gaining momentum in the United States. The goal, similar to open banking, is to enhance the way consumers in all industries interact with money. There are numerous far-reaching benefits of the open finance movement, both for consumers and organizations.
Consumers receive fast access to apps and services. Opening up data access allows someone to sign on and share their data with popular third-party apps (such as Netflix or Amazon.com) so they don’t have to re-enter their information every time. Taking it a step further, a stream of innovative applications such as fraud monitoring, automated savings, accelerated mortgage reduction and more are possible once access to financial information is opened up.
Greater security and control. With currently available technology, financial institutions, can leverage API connections to allow account access or facilitate money movement for their customers. This control provides a sense of autonomy and security for consumers and bankers alike, creating an improved and secure money experience. Banking APIs also impact business models, and most significantly, allow banks to adapt to changes in the marketplace.
But security is critical when “opening up data” to the world. When we launched our open finance platform, MX Open, we ensured that financial institutions would be able to help protect their user’s financial data. Security needs to be at the heart of any successful open finance strategy, so that financial institutions, third-party financial apps and other companies can create more personalized money experiences that give customers greater access and control.
Easier connection of services, apps, cores and systems. Establishing a secure, end-to-end mechanism for sharing data not dependent on credential sharing allows banks and fintech companies can connect to many, many more services — resulting in even more services and offerings for users. Data connectivity APIs exist for that purpose: to empower organizations beyond the constraints of legacy systems, connecting financial institutions with new services, apps, cores and systems.
As a company focused on the financial services space, we recognize that data should be open to everyone. This movement of opening up — from open-source, to open banking to open finance — can only help bankers and boards maintain the advocacy-focused approach they desire in serving their customers, while increasing control over their roadmap to innovate faster and deliver the right tools and products to the right customers.
Banks are increasingly becoming technology companies—not in the eyes of investors, perhaps—but certainly in terms of meeting the expectations of their customers in a rapidly digitizing consumer marketplace. Banks have been heavy users of technology for decades, but the role of technology in virtually every corner of the bank, from operations to distribution, to product design, lending and compliance, is taking on a greater strategic importance.