Open Banking: What It Is and Why It’s Beneficial
Having already gained traction in the international market — particularly in the UK and EU — open banking is on the rise in Australia. According to the Open Banking Global Market Report that was released earlier this year, the global open banking market is said to grow by 26.5%, taking it from US$15 billion in 2021 to US$19 billion in 2022. And by 2026, it’s believed to reach $48.13 billion.
But what is open banking, why is it skyrocketing worldwide, and why do both businesses and consumers benefit from it?
What is the meaning of open banking?
Often referred to as open bank data, open finance or in Australia, Consumer Data Right (CDR), open banking is reimagining the banking industry with its innovative technology and open data policy.
Put simply, open banking gives you the choice to share your data with external platforms. Why? So that you can leverage the power of financial apps, services, and banking products in your everyday life. It’s important to note that the third parties you are sharing your data with have all been accredited by the ACCC (Australian Competition & Consumer Commission).
As bank customers, consumers have the final say as to how their data is used, what is shared (which could be anything like account balances, transaction details, and home addresses) and who it may be sent to. These days, the third-party service providers that need access to your data are typically tech startups and online financial service vendors.
Note: CDR will never ask for your internet banking passwords. Instead, it uses API’s (which, put simply, is the way systems communicate) to transfer data meaning it is far more secure and regulated than traditional data-sharing methods.
What is an example of open banking?
Want to take out a home or personal loan but don’t want the inconvenience of finding and providing all the correct documentation (proof of identification, bank statements, personal details, banking information)? Enter open banking.
Via a third party service, open banking could allow you to transfer all your information from one bank to another at the click of a button, saving you time and effort in the process. It could also give you the option to transfer over your direct debit arrangements, meaning no manual payment or subscription updates would be needed.
Why is open banking on the rise?
The main reason for this rapid growth in online banking is the rapid growth in the usage of online platforms and ecommerce businesses, where online payments need to be made. With the increase of social commerce, comes the increased need for seamless, secure, and compatible payment systems that provide both the consumer and the business with a smooth user experience.
What is the benefit of open banking?
For businesses, open banking allows for:
- A smoother, simpler, and more enjoyable customer experience
- Higher customer conversion and acquisition rates
- More innovative financial solutions to be built
- Lower transactional fees and therefore more revenue
There are numerous benefits of open banking for consumers. Some of them include:
- Security. Thanks to the ADR (Accredited Data Recipient), there are strict rules around what can be done with consumer data. There are no internet banking passwords when granting consent to open data. Instead, consumers will undergo a form of multi-factor authentication such as an OTP (one-time password), so there’s no need to worry about data breaches or unwanted marketing.
- Sharing your financial info at the click of a button. For example, when applying for a home loan there’s no need to print, scan, and submit endless paperwork to the financial institution you’re applying with
- Receiving more accurate recommendations when it comes to financial comparison services or apps
- Visibility of direct debits, memberships, subscriptions, or recurring payments
- Receiving more accurate financial advice from apps or financial services platforms
Waave simplifies transactions with open banking
Waave is a new payment platform for businesses to transact with their customers with up to 80% reduced merchant fees and a single flat fee. Using data and open banking technology, Waave helps businesses enable simpler consumer-to-business payments without unwanted costs, schemes, fraud, hidden fees or chargebacks.
In short, it’s modernising direct debit by bringing into the 21st century
On the flipside, it’s a payment app that allows customers to manage their money in one place, and finally take back total control of their money.
Learn more about Waave today.