As discussed in our Slice newsletter this week, Open Banking is the term used to describe the sharing of your financial data through electronic and secure means with third parties (like 22seven) of whom you have approved.
Open banking is the latest development in the financial industry, gaining huge traction globally over the last couple of years. The main reason for this is that it is tailored towards and has major benefits for you, the customer.
Let’s jump into the benefits of Open Banking – if you need a refresher on the basics of Open Banking, you can find it here.
How might your bank change?
Once you download and access an application developed by a third party (like 22seven) and allow them (limited) access to your financial data through Open Banking, the application they develop analyses your data to create personalised feedback for you.
These applications could help you to budget more effectively by categorising the money you spend or matching you with credit providers. They could give you an overview of where your money is, even if you are using multiple banking service providers. This means that if you have a Tax-Free Saving Account, a savings account, a cheque account and an investment account from different service providers, an aggregated view of these can be created on a single platform. This helps you to better visualise your financial situation.
With third parties designing innovative platforms, banks will be pressured to improve their services. The “traditional” banks might have to improve money management tools to remain competitive. They may also be forced to increase transparency and reduce banking fees as implementing technology could reduce costs. This is evident in the rise of online, branchless banks which offer a product that is easier to understand and is competitively priced.
Improving your choices
By combining artificial intelligence and machine learning with Open banking, you can receive superior insight into your finances. You’ll have the option to receive personalised messages regarding loans or investment offers that are tailored to your unique financial status.
Apart from recommending services to you, the applications available could predict funds needed for events like music festivals or trips abroad – you know, all the things that you’re interested in! The system will recognise the event and anticipate the funds you’ll need to save or invest for it. This, in turn, will help you to make better spending and investing decisions.
Remember, not all investments are the same. They may have different time horizons, some are riskier than others and some will provide greater returns than others. By analysing your financial information, an application could recommend an investment that is applicable to you.
Apply for a loan
Instead of spending unnecessary time finding misplaced documents or nervously waiting for a call regarding the possibility of obtaining a loan, potential lenders will be able to access the information they need more efficiently through third party applications. Lenders can gather this information from various sources which helps them to offer you a loan which is tailored to your financial status.
A personal accountant
Have you ever tried to produce tax reports manually or check the value of your investments or what you owe? With Open Banking, the potential exists for applications that will automate tax reports. It can act as your personal accountant by examining your financial records and producing an overview of your investments and liabilities.
Identifying fraudulent activities
Open Banking platforms are able to warn you about payments that could potentially be fraudulent. They can also highlight monthly charges which may not be necessary – for example, recurring monthly payments for a service that you are not using. Notifications regarding an unusually large payment for an item in comparison to the previous months will also be highlighted.
You might be using an application that has some of these features and benefits which have been discussed above – and it’s waiting for you to take advantage of these features here. These app developers are continuously looking to improve and add to their existing offering. In the future, you can expect to have more benefits created for you through the growing concept of Open Banking.