Open banking benefits for consumers

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Have you ever been transferred to your banking app to complete a transaction online? That’s open banking. Have you ever used a budgeting tool that connected all of your accounts in one place? That’s open banking, too. 

Open banking is an innovative framework that allows banks to share data with licensed fintech companies, like Noda, under consumer consent. They do so via open Application Programming Interfaces (APIs), sets of defined rules that enable software to communicate with each other. 

In Europe, open banking is embedded into legislation. The groundbreaking PSD2, enforced in 2018, mandated European banks to open their API data to authorised fintech companies. To access the data, fintechs need to obtain a specific license. 

Benefits of open banking 

There are four key advantages of open banking for consumers: better payments, personal finance tools, tailored products and control over data. Let’s take a look at these benefits in more detail. 

Better payments

The self-evident benefit of open banking is a smoother, more enjoyable payment experience. Instead of having to insert your payment details manually, the open banking functionality redirects you to a trusted banking app and lets you pay directly from your bank account. 

It saves time and effort and is a more secure way of paying online. Under PSD2, for example, multi-factor verification is a legal requirement to authorise open banking payments. 

The better payment experience is enabled by platforms like Noda. Having a PISP license, Noda works with online merchants who want to simplify their payments with the open banking functionality. After a consumer initiates the payment, Noda communicates with the issuing bank via regulated APIs. 

Personal finance tools 

Another license a fintech can obtain to gain open banking functionality is AISP. It allows them to access read-only information with consumer consent but not to initiate payments like PISPs.

AISP fintechs gather data from multiple banks or financial institutions. Think of budgeting apps and personal finance tools that bring all of your accounts in one place. Loan providers often use AISPs to quickly access an individual’s credit history or verify their income. 

Like PISPs, AISP fintechs access data via open APIs. After a user request, an AISP app will collect information and consolidate it into a single piece. For consumers, this means better and more efficient financial management.

Tailored financial products and services 

Open banking is built on the core principle of data sharing. With open banking, fintech companies can gain a deeper understanding of customers’ behavioural patterns. This results in highly personalised financial products and services. 

For example, budgeting apps can use API data to identify spending patterns and deliver tailored savings recommendations. This level of personalisation can significantly improve the overall financial experience for consumers. 

Control over financial data 

Arguably, the best thing about open banking is that it’s not imposed. Consumers hold the ultimate control as the data sharing cannot happen without their explicit consent. 

Consumers choose which apps and websites they want to share data with, so they are always in charge. They decide what information a firm can access and for how long. Hence, consumers have the ultimate power in the open banking ecosystem.