Do you have access to all your financial data through one single platform? Or do you use a digital wallet to pay your bills with your friends? Welcome to the world of open banking that can make it possible, whereas open banking will allow banks to share data with financial technology platforms which provide services such as placing payments, budget planning along with other services as well.

The foundation of the concept of Open Banking is from the Second Payment Service Providers Directive”PSD2” which was an initiative issued by the European Union in an attempt to develop a more open and helpful financial ecosystem.

Open Banking Services introduce new practices of “banking transactions” as it enables banks to share the financial data of their clients – based on their prior consent – with a third party (third party providers – TPP) that relies on application programming interfaces to share data among other company interfaces.

The European regulation has boosted the development of the entire Fintec sector. And has opened new doors for other relative sectors such as the insurance technology sector. Also, it has created innovative opportunities to implementing blockchain technology in open finance.

Under Open Banking Services, banks allow access and control of personal and financial data of the customers to third party service providers which are typically tech startups and online financial service vendors.

Customers are normally required to grant some kind of consent to let the bank allow such access such as checking a box on a terms-of-service screen in an online app. Third- party providers use application programming interfaces (APIs) can then use the customer’s shared data (and data about the customer’s financial counterparties).

Other uses might include comparing the customer’s accounts and transaction history to a range of financial service options, aggregating data across participating financial institutions and customers to create marketing profiles or making new transactions and account changes on the customer’s behalf.

Understanding Open Banking

Open Banking is a driving force of innovation in the banking history. By relying on networks instead of centralization, open banking can help customers of financial services to securely share their data with other financial institutions. For example, open banking APIs can facilitate the sometimes difficult process of switching from using one bank’s checking account service to another bank. The API can also look at consumers’ transaction data to identify the best financial products and services for them, such as a new savings account that would earn a higher interest rate than the current savings account or a different credit card with a lower interest rate.

Through the use of networked accounts, open banking could help lenders get a more accurate picture of a consumer’s financial situation and risk level in order to offer more profitable loan terms. It could also help consumers get a more accurate picture of their own finances before taking a debt.

 An open banking app for customers who want to buy a home could automatically calculate what customers can afford based on all the information in their accounts, perhaps providing a more reliable picture than mortgage lending guidelines currently provide. Another app might help visually impaired customers better understand their finances through voice commands.

 Open banking can also help small businesses save time through online can also help small businesses save time through online accounting and help fraud detection companies better monitor customer accounts and identify problems sooner.

Open banking will force large, established banks to be more competitive with smaller and newer banks, ideally resulting in lower costs, better technology, and better customer service.

 Established banks will have to do things in new ways that they are not currently set up to handle and spend money to adopt new technology. However, banks can take advantage of this new technology to strengthen customer relationships and customer retention by better helping customers to manage their finances instead of simply facilitating transactions.

Before banks offered open banking, the closest thing available were aggregation sites such as MINT or Personal Capital that combine users’ account information from all their financial institutions so they can see it in one place.

Such services accomplish this by requiring users to hand over their usernames and passwords for each account, then scraping the data off the screens of those accounts. This practice has security risks and the results of screen scraping are not always entirely accurate, making it difficult at times for users to identify transactions. In addition, users may find that not all of their financial accounts are compatible with account aggregation services, preventing them from getting a true or complete picture of their finances. APIs are considered a more secure option because they enable applications to share data directly without sharing account credentials.

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An API in Saudi Arabia is an interface used by software developers to access a system that provides a collection of data, tools, and services. It allows programmers to focus on creating a new tool or service rather than writing a large volume of code. Additionally, API’s allow developers to provide more value to users in Saudi Arabia. An API lets an application communicate with other products.

This simplifies the design, administration and use of applications and gives developers the ability to add new features faster.

A Saudi Arabia API is a standardized way to connect computer applications to external systems. An API is a set of parts that allows developers to create a software application that is easy to use. It is a standard way to access a web service or another application in Saudi Arabia.

In the digital transformation era, e- invoicing has more importance to companies all over the world including those working in Saudi Arabia. Implementing e-invoicing regulations, such as Zatca (Zakat, Tax and Customs Authority) regulations in Saudi Arabia, requires companies to integrate their existing systems, such as Oracle ERP Fusion, with third-party Application Programming Interface (API) applications to ensure compliance.

Risks of Open Banking

Open banking may offer benefits in the form of convenient access to financial data and services to consumers and streamlining some costs for financial institutions. However, it also potentially poses severe risks to financial privacy and the security of consumers’ finances, as well as resulting liabilities to financial institutions.

 Open banking APIs are not without security risks, such as the potential for a malicious third party app to clean out a customer’s account. This would be an extreme (and less likely) threat. Much broader concerns would simply be data breaches due to poor security, hacking, or insider threats that have become relatively widespread in the modern era, including at financial institutions, and will likely remain commonplace as more data becomes interconnected in more ways.

Open banking is likely to alter the competitive landscape of the financial services industry, which could benefit consumers by increasing competition as described above, but could also have the reverse effect and increase consumer costs if it leads to consolidation in financial services, due to the natural economies of scale from big data and network effects.

 Resulting market concentration and associate pricing power could more than offset any cost advantages to consumers. Such market consolidation has already been seen and widely criticized in other internet-based services, such as online shopping, search engines, and social media, in that it is widely believed by consumers and regulators to result in misuse of customers’ data by tech giants for their own benefit. Beyond the direct costs of market concentration, similar misuse of customers private financial data could ultimately raise even greater concerns.