Open Banking Benefits for 6 Types of Businesses

Open Banking technology has the potential to spur innovation across the financial services industry and change the way we leverage consumer data. But blanket statements like these (true as they may be) won’t actually convince anyone why regulating and normalizing Open Banking is the key to the future of how we make payments and create better financial services.

Some people need to know what Open Banking will do for them. We get it!

In this blog, we’ll cover some of the benefits that merchants and FinTechs can experience from implementing Open Banking.

What Is Open Banking?

More than half, 55%, of Americans have heard of Open Banking thanks to the rapid growth of the FinTech sector.  This is because customers are seeking greater control and customization in their banking experience, and startups have created novel Open Banking solutions that have made this technology more popular as a result.

But what exactly is Open Banking?

Open Banking enables banks to securely share customer banking information with third parties through the use of application programming interfaces (APIs). Rather than directly accessing data themselves, banks act as gatekeepers of sensitive customer information. 

With a customer's approval, banks can connect their systems to aggregator APIs using secure endpoints. These aggregator APIs then facilitate the controlled transmission of bank data to authorized third-party financial technology companies. This allows FinTechs to build innovative new services using financial data, while banks maintain responsibility over data security and only share information with a user's consent. 

For the largest banking institutions, some may opt to develop their own proprietary APIs to connect directly with FinTech partners. However, in general aggregator APIs play a key intermediary role in Open Banking by enabling banks of all sizes to participate while prioritizing privacy and compliance. As a result, FinTech companies can access transaction history, account balances, and payment data through these APIs.

Additionally, access to these APIs can allow third parties (like FinTechs) — to leverage this banking information and provide innovative financial products and Open Banking services to their customer base. And by partnering with established large banks, FinTechs can embed their products and services directly within the bank's existing platforms. This kind of partnership serves as a powerful, passive source of lead generation for FinTechs by making their offerings available seamlessly to the bank's large customer base, allowing them to acquire new users at scale. In other words, it's a win-win for both parties.

Lead generation aside, Open Banking APIs also empower third parties to initiate payments directly from a customer's bank account. For example, a billing platform could facilitate utility bill payments with ease, eliminating the need for users to log in to their bank accounts repeatedly.

Open Banking Benefits for All Businesses

Whether you’re a startup or a global enterprise, Open Banking systems create many opportunities for FinTechs and financial service providers to develop innovative offerings and reach new customers. 

We’ll dive into industry-specific benefits in a moment, but first, here are four ways that Open Banking practices benefit all types of businesses.

1. Access to New Data Sources

With customers' consent, Open Banking APIs allow companies to gain valuable insights from bank transaction histories, account balances, and other real-time financial data. This wealth of customer data can then be analyzed to design personalized products for users. For example, a FinTech could create a new product that provides credit offers tailored to individuals' spending patterns. Or, they could recommend certain investment products and strategies based on a customer’s financial goals.

2. Increased Customer Reach via Partner-Led Growth

FinTechs benefit tremendously from partnerships enabled by Open Banking. By embedding their services within banks, they can access large pre-existing customer bases for new user acquisition and cross-selling opportunities.

Think about the money lending apps tied to your online banking app or the financial robo-advisors integrated into your mobile wallet. These are both perfect examples of how Open Banking practices enable product-led growth for companies.

3. Lower Customer Acquisition Costs

When FinTech services are made accessible through banks, the financial institution is the one handling all the initial onboarding, KYC checks, and account openings for new users. This passes much of the customer acquisition workload to the banks, meaning that FinTechs don’t have to pour money into marketing campaigns or user onboarding when compared to their competitors.

Benefits of Open Banking for 6 Different Industries

Now that we’ve covered the benefits of Open Banking at a high level, let’s dig into some of the nuances. The way you leverage the data provided by Open Banking will vary based on your industry. While the principles are still the same, understanding how you could use your customers’ financial information to improve their experience with your company can give you a competitive advantage.

Here are some of the benefits Open Banking provides by industry:

1. E-Commerce Companies

For e-commerce businesses, Open Banking can deliver valuable payment insights that may help optimize your checkout processes and reduce cart abandonment rates — a study from 2023 even found that a lack of payment options results in cart abandonment for 11% of respondents. However, by understanding a customer's preferred payment methods and past transaction histories through their bank, you can present tailored payment options at checkout to encourage them to complete their purchases. 

Additionally, the data connectivity provided by Open Banking can give you insights into your customers’ spending patterns via their bank data — you can then use this data to personalize their product recommendations, promotional offers, and any marketing communications. This level of personalization not only creates a better customer experience, but it gives you more control over how you market your products across different customer segments.

2. Insurance Companies

Similar to e-commerce companies, Open Banking offers countless ways for insurance companies to better understand their customers and streamline operations. 

By accessing consumer financial data, you can gain deeper insights into your clients' risk profiles by analyzing their habits like spending, savings, investments, and borrowing. This detailed picture of their lifestyle and financial circumstances can then help you recommend specific insurance plans and coverage levels according to your customer’s individual needs. 

Furthermore, by partnering with traditional banks, you can offer automatic premium Open Banking payments directly from your customer accounts, improving your overall payment processing efficiency. It’s also worth mentioning that Open Banking facilitates simplified claims processing. You could potentially leverage bank transaction data to assess your customers’ claims and expedite payouts for any potential out-of-pocket medical expenses or property repairs that a customer needs to make. 

3. Utility Companies

With Open Banking, utility providers, telecom companies, and other billers can offer more flexible payment options tailored to their customers and gain a deeper understanding of their users' payment preferences — such as payment frequencies and due dates. 

Additionally, you could use the income and expense data made available from the Open Banking ecosystem to perform more accurate affordability assessments for your customers who may be struggling with their bills. But this access to consumer data can help you do more than just recommend payment methods and frequencies — you could also provide energy usage recommendations to your customers based on their consumption history and give them tips for reducing their total utility costs.

4. Lending Companies

Open Banking stands to improve the lending process for both lenders and borrowers significantly. With access to robust bank data, lending institutions can leverage the payment histories and financial information provided by Open Banking to make instant pre-qualification decisions, streamlining their customers’ application processes. Plus, the integrations with banks could allow for automated loan disbursements that would transfer directly into your customer accounts. Repayments could also be set up automatically through recurring bank transfers. 

5. Wealth Management Companies

Open Banking opens the door to new levels of customized service for wealth and financial management companies.

When your clients’ financial portfolios are connected to their bank account data, you can make automatic adjustments as cash flows fluctuate over time. This can make it easier to adjust capital allocations with less manual effort needed — of course, you wouldn’t want to outsource this work completely, but it could be helpful if you’re trying to manage several customer accounts at scale.

Just as importantly, the insights revealed through Open Banking’s data connections can give your advisors a deeper understanding of clients’ personal financial blueprint. With this information on hand, you can make recommendations that factor in variables like your clients’ risk tolerance, financial goals, budgeting habits, and full asset/expense views.

6. Gaming and Sports Betting Companies

Open Banking also enables powerful new capabilities for gaming companies looking to streamline their payment processes. By linking bank accounts with a user's consent, operators gain insight into their preferred deposit and withdrawal methods. This also allows them to customize the user experience according to the users’ preferred payment methods (e.g., credit card vs. debit). 

Additionally, Open Banking facilitates instant verification of account ownership for both deposits and payouts. This real-time confirmation means that winnings can be released directly to players without any delay. But this isn’t just beneficial for the players — for operators, it reduces friction in the payments workflow that can improve cash flow and user retention.

The Risks of Open Banking for Businesses

While Open Banking presents many opportunities to enhance the customer experience, you must be aware of the risks involved when leveraging sensitive financial data. 

First and foremost, Open Banking depends on maintaining user trust, which means that you’ll need robust privacy and security practices in place to protect your customers from any potential data leaks or unauthorized access to their bank account information. Regulatory compliance is also crucial as the rules around Open Banking continue to evolve — any missteps could result in steep fines or limitations being imposed on your company. 

Additionally, an over-reliance on the large volumes of data available through Open Banking isn’t a wise choice — ideally, this data will serve to supplement the work your employees are doing. This is because banking information, like transaction details, for example, only provides a partial view of your customers’ unique financial priorities and circumstances. 

Fortunately, Open Banking platforms (like Trustly) are doing their part to minimize the risks of Open Banking. We even filed a comment letter with the CFPB offering our support and suggestions to augment Section 1033 of the Dodd-Frank Act. 

Leverage the Power of Open Banking With Trustly

Ultimately, Open Banking practices should make financial transactions easier and more convenient for everyone. And if you want to take advantage of these benefits, you’ll need the right tools.

With Trustly, you’ll have all the tools you need to securely access your customers’ banking information and easily send and receive payments. Not only will this reduce your total card processing costs, but Trustly’s A2A payment technology makes it easy to create a simple, end-to-end payment experience for your customers.

Schedule a demo with our team to get started.