Open banking has become the new buzz phrase in the financial world today. After becoming a staple of the European economy, open banking is now in the United States. New technologies are changing the way the banking industry functions by creating more efficient and cheaper financial services. 

According to Forbes, open banking is somewhat of a revolution changing the banking industry. With open banking, third parties can now use personal banking information to help customers save money, borrow more easily, and pay efficiently. So what exactly is open banking and how can it impact your business? This new way of banking can change the way you do business and process transactions.

The Concept of Open Banking

Open banking solutions create a collaborative environment between financial institutions and businesses. It allows businesses to acquire aggregate data quickly from numerous financial firms. It is as simple as data sharing. An app developer could access checking accounts and offer services to help customers track spending and earning habits over time. Open Banking will also let a price comparison site access customers' banking information, so it can tailor the products it suggests to what the customer can afford and what they typically spend.

In the past, banks closely guarded and secured all transaction and account data for their customers' privacy and security. Traditionally, account and transaction information was some of the most secure personal information. However, in the interest of customer service and business strategies, the advantages of opening data collection and sharing have recently been acknowledged by financial institutions and technology companies. This is providing seamless and quick access to information.

How Open Banking Works

While not required by law in the United States, like it is in the UK, American banks are sharing data for the benefit of their customers at an increasing rate. The major benefit to customers is that payments can be able to be made in seconds and all from one place, making everything more convenient. The benefit for businesses is that they have information to better serve their customers and offer more personalized products. Ideally, open banking will result in a better experience and more financial opportunities for businesses and consumers.

For example, third parties like personal financial management firms can access bank account information to help customers track spending, budget, and plan for major purchases. Open banking allows businesses and consumers to share customer data to enable greater collaboration. Consumers are taking control of their financial information and businesses can offer services, products, and processes that simplify the way they conduct business.

Open Banking and Payment Management

As discussed, banks used to provide end-to-end services from banking to payments. Customers' accounts were completely controlled by financial firms. With the introduction of open banking standards, payment management is changing. Banks are no longer the only members of the club. These new standards have banks sharing customers’ data with third-party providers, who are taking a stake in the payment landscape.

In the past, if a consumer had two different accounts, they only had the ability to track one account at one time and conventionally transfer money. With the use of third-party financial tools consumers now have the ability to access several accounts through a single service. Along with this change comes how users can access and make everyday payments.

For years the payment process was slow and expensive. It took several steps and even some manual intervention. As third-party providers gain more access to accounts and financial information, the process is radically changing. Businesses and financial firms have the ability to accept payments directly from customer accounts. This is revolutionizing payment management and creating a quicker and cheaper payment process for all parties.

Open banking is bringing changes within the baking and payment sector that is upending the way we bank and spend money. With the implementation of digital-only banks and banking through intelligent software, payment processing is now wide open. Open banking has become the new norm with payment management.