Open Banking

Financial data has historically been treated as private information banks do not want to share with other partners. On first thought, sharing my personal financial information with someone random sounds risky, and it is.

But what if I trust the entity receiving my financial information? By sharing my financial information with a trusted third party, am I getting something precious in return? I will share the info with a trusted third-party vendor to get more value from my banking information.

I have already been doing so. I have been sharing my banking information with a few vendors, e.g., CIBIL and CRED, for the value, they bring to me in return.

CIBIL (Credit Information Bureau (India) Limited) is India's credit information company that maintains records of the credit history of individuals and companies. Established in 2000, it has become vital to India's financial system. CIBIL collects and maintains data on credit-related transactions, including credit card payments, loans, and other credit facilities, and provides this data to banks and other financial institutions.

CRED offers a platform that enables users to manage their credit cards, track their spending, and earn rewards for paying their bills on time. The platform provides users with a simple and intuitive interface that makes it easy to view their credit card transactions, track their spending, and manage their credit card payments.

With the help of CIBIL, which maintains my financial records, I have proven that I am financially strong and can repay loans well within the time to the banks. This helped banks trust me with their money, and I was able to purchase a house!

Cred has helped me multiple times by pointing out non-standard charges applied by the banks, and I was able to negotiate with the banks for better offerings. This was possible only because I had shared my credit card statements with Cred, and they could analyze and help me with the fine lines that I needed to look into.

Open banking is a system in which banks share customer data with third-party providers via APIs, allowing these providers to offer innovative financial products and services to customers. It results from legislation, such as the Payment Services Directive 2 (PSD2) in the European Union and the Consumer Data Right (CDR) in Australia, that seeks to increase competition and consumer choice in the financial sector.

Open banking operates on a platform approach, where banks provide APIs that enable third-party providers to access customer data securely and with consent. These APIs provide a standard interface for communication, making it easier for third-party providers to create products and services that work with multiple banks. Open banking has revolutionized the financial services industry by enabling third-party providers to develop innovative products and services. These include personal finance management apps that analyze a customer's spending habits to help them save money, lending services that use customer data to make better lending decisions, and payment services that offer faster and more convenient ways to pay.

An API (Application Programming Interface) is a set of protocols and standards that enable different software applications to communicate with each other. In open banking, APIs provide a standardized way for banks and third-party providers to share customer data. APIs also ensure that the data is transmitted securely and controlled, reducing the risk of data breaches.

The Open Bank Project is an open-source API platform for banks that allows them to securely and efficiently share their data with third-party developers and fintech firms. The platform is designed to promote innovation and collaboration in the banking industry by enabling developers to create new applications and services that leverage bank data.

The Risks:

Open banking comes with several risks, including the risk of data breaches, the risk of fraud, and the risk of technical glitches. Banks and third-party providers must ensure robust security measures to protect customer data from cyber-attacks. Additionally, banks must provide adequate fraud detection and prevention measures to prevent unauthorized access to customer data. Finally, banks and third-party providers need contingency plans to address technical glitches that may occur.

Conclusion:

Open banking is transforming the financial services sector by enabling third-party providers to access customer data securely and with consent. The platform approach of open banking allows for collaboration between banks and third-party providers to create innovative financial products and services. Standardization and data-sharing laws and policies are essential to ensure that customer data is protected and third-party providers operate transparently and ethically.