Financial Services
Open Banking
Financial Services
Open Banking
June 4, 2024
8 minutes

3 Ways Open Banking Can Unlock Growth in Financial Services

Phillip Elder

Head of Content

Have you ever thought about how much you rely on data in normal, everyday life? We do it all the time without even thinking about it. 

Whether we’re looking up restaurant reviews (data) to decide where to dine. Or reading through product reviews (data) to see if that Amazon Prime purchase is really worth it. Or opening a budgeting app (data) to plan a summer vacation.

We consume LOTS of data, whether it’s simple or complex.

Why? Well, we want to make the best choice based on the information available to us. The same goes for your business. Better info leads to smarter decisions.

That means the data you rely on for business decisions needs to be accurate and reliable. Your data provider should champion uptime, secure bank connectors, and regular solution maintenance.

In this article, we’re talking all about Open Banking data and how it can help you make better decisions for your business. We’ll explore:

  • Why the Open Banking framework is a good thing.
  • The importance of data quality over quantity.
  • Open Banking legislation developments in the U.S.
  • 3 ways that Open Banking data could make your business even better.

Data Sharing Is Good for Businesses and Consumers, but It Must Be Reliable and Accurate

What better way to dive in than with a … fishing story? 

There’s an ongoing debate in the world of professional fishing right now: should tournaments ban advanced sonar, which is a technology that provides very detailed underwater information in real time.

People seem to either love it or hate it, and the arguments usually go something like this:

“It’s destroying the sport of fishing. Look at a screen–no skills required.”

OR

“It helps you see fish activity in real-time–but it doesn’t make them bite.”

And at the core of the debate? Data. Is better data a good thing or a bad thing?

Let’s rework the argument in favor of better data and apply it to businesses in the financial services industry: 

Better data can help companies to better understand consumer financial health and behavior–but it doesn’t make them buy.

Again, is better data a good thing? We’re confident that the answer is a resounding “yes.”

Bank Data So Good, It Can Power Payments

The bank data that you receive has to be accurate and reliable. Otherwise, it’s not going to be usable in any meaningful way. So, how can you be sure the bank data your business receives is accurate and reliable?

Simple. Demand the highest quality data from your Open Banking provider. After all, the livelihood of your business depends on it.

The best place to start is with your data provider. Ask these questions and make sure you’re getting straightforward answers. You might be surprised to find out there’s a better solution even if the banking data has been “good enough” for you so far.

  • What is your system/platform uptime and are there SLAs to guarantee it?

You’re looking for uptime performance of four nines (99.99%) or better here. This allows downtime of 8.6 seconds per day, which translates to 52 minutes and 9.8 seconds per year. Never sign an SLA for anything below 99.9%.

  • How is the bank-grade data delivered to your business?

Your Open Banking provider should access and deliver customer-permissioned bank data through APIs rather than screen scraping. If not, it’s time for an upgrade. Your customers deserve the most secure solution, and screen scraping isn’t it.

  • Who maintains the bank connections (APIs)?

Maintenance matters. Why? Because specifications change and your Open Banking provider should be responsible for keeping pace. The main point here is: if you built it, you should maintain it. Too many Open Banking providers rely on bank connections that they have no control over. If the connection fails, they can’t fix it. That’s no good for your business or your customers.

The bank-grade data you use to power innovation needs to be great. We suggest taking it a step further by demanding data that’s so good you could use it for payments.

Here’s what we mean by that: not all data is the same quality. Open Banking is so powerful because it rides the success of bank-grade data. Banks require incredibly accurate customer information for opening an account, funding an account, and making payments.

But there's another piece of the puzzle here: low latency. If we're talking about payments-grade data, then we also have to demand that the delivery of that data meets the same standard.

Payments happen quickly, in real-time. Open Banking Data delivery should be just as quick.

We think it’s a good idea to use that same level of detail to your advantage.

CFPB Section 1033PYMNTS

3 Ways Open Banking Data Could Take Your Business to the Next Level 

We tapped our Open Banking experts for their takes on how financial services companies could use Open Banking Data to level up their businesses.

Do these correctly, and you could fuel BIG growth for your business.

number 1

Remove Friction from Onboarding and Customer Identification 

An article from The Financial Brand states, “Unless a financial institution can open a new account or complete a new loan application in less than five minutes, the potential for the consumer to abandon the account opening increases to as much as 60% or more.”

The Problem

Friction kills the customer experience. That’s true for account openings at banks and financial services. Consumers run away from friction and abandon online applications and account sign-ups at around the 68% mark.

The Solution

Bank-level KYC through your customer’s online banking login can remove friction for your customers. As a result, you can onboard customers in real time using their bank account information for payments (no more micro deposits) and account holder information like name, DOB, and address.

That means if your business provides an investing app, your customers can connect their bank account, load funds, and start investing immediately. And all of their onboarding information is built into the solution thanks to Open Banking. That’s frictionless, and it’s exactly what customers are looking for when they open an investment account.

number 2

Deliver Personalized Financial Services to Your Customers

One-size-fits-all financial products just don’t work for today’s consumer. They expect more. And why shouldn’t they? Financial service companies have a great opportunity to set themselves apart from the competition by letting their customer’s bank data guide them.

The Problem

Fintech is fiercely competitive, and the landscape isn’t changing anytime soon. Whether you’re offering an interactive budgeting app, wealth management, or lending products, you need a detailed roadmap to find your potential customers.

The Solution

Learn your customer’s financial behavior based on their bank data and then create a product that’s irresistible. You can offer flexible payment terms based on their history of account deposits and transaction information. That’s targeted marketing based on their behavior, with no guesswork.

For example, your lending company could target the ideal loan candidate with a much higher success rate if you crafted an offer that fits their financial profile. That’s possible with Open Banking Data, and you can do it at scale. 

number 3

Mitigate Fraudulent Account Openings

Digital onboarding has improved the account opening experience for people. Behind the scenes, it also requires financial services companies to hyper-focus on stopping fraudsters through KYC, AML, and ID verification. This creates a balancing act to avoid friction while stopping fraud.

The Problem

Identity fraud in digital account opening has become frictionless … for fraudsters. They no longer have to walk into your business and trick you into opening an account using someone else’s credentials. Now, it all happens online.

The Solution

Use bank-grade data to drastically reduce identity fraud risk by accurately completing KYC checks and identity verification. Open Banking has some of the best anti-fraud tools built right into the ecosystem.

Imagine how accurate your account openings could be by using bank-verified data to make sure your customers are who they say they are. The best part about it? They don’t have to wait days for identity verifications or microdeposits to clear. Open Banking Data can make it happen in real-time. That changes everything.

What Will You Do With Open Banking Data? 

The opportunities in Open Banking for financial services are many. Using bank-grade data through secure API connections, businesses can unlock deep insights into their customers' real financial lives.

This level of accurate, granular data is a game-changer–allowing for personalized money management tools, tailored lending products, seamless payment solutions and more that precisely meet each individual's unique needs and behaviors. No more one-size-fits-all solutions.

But Open Banking isn't just about better data. It builds trust between you and your customers. Both sides can integrate and share data transparently, putting issues like security, compliance, and consent at the forefront.

Leaders who capitalize on Open Banking's capabilities early will be well-positioned for the long run. Prioritizing data quality, streamlining onboarding, reducing fraud risks, and delivering hyper-relevant offerings are just a few of the potential wins.

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