Driven by external regulations, open banking is causing banks to quickly get up to speed with application programming interfaces (APIs). By working together, both banks and fintechs can use APIs to enhance the customer experience. However, banks have as much to gain from open banking as customers do.
Financial institutions will see a number of benefits from open banking. Once banks start pulling data from other financial institutions, they can use that combined data to improve back-end systems like risk scoring. In addition, banks can use this new wealth of data to better understand their customers and target marketing and sell more tailored products.
Although there are myriad ways that financial institutions can leverage data to improve customer experiences and business performance, they must focus first and foremost on gaining consumers’ trust and mitigating privacy concerns. Banks need to make sure anything they do is permission-based. Just because you have the ability to use data and someone signed a terms and conditions form when they opened an account, that doesn’t mean you have consent. You need to go to the customer and say, ‘Do you want to enable this feature?’ It is very, very important that customers consent and opt into a service instead of having it pushed on them.
For banks beginning their open banking journey, attention must also be paid to liability issues. In a traditional case of fraud, only two entities are liable: the bank or the customer. Once you start working with APIs, things can get murky. If a customer is accessing their bank through a third-party service and there’s an issue, then who is liable? There’s the potential for everyone to shrug their shoulders and point the finger at someone else.
Another potential issue is the risk from an overreliance on other organizations' APIs. As banks become more reliant on other APIs for their services to work, along with APIs becoming dependent on a chain of other APIs, it can take just one break in some other organization’s service for a bank’s system to go down. As open banking drives banking systems to become more complicated and reliant on APIs, banks will need to prioritize proper dependency management to keep everything working.
Gledhill already has a clear picture of what comes after APIs. In the future, we’ll see individual personal interfaces, or IPIs, that allow customers to master their own data and push it out to financial institutions on a need-to-know basis. This will have a powerful impact in terms of the way banks manage data.
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