Technology has advanced rapidly in recent years, and open banking has opened a new chapter in the financial industry.
Through secure APIs, account information service providers, financial service providers and fintechs can access bank data, with the customer’s consent, and offer services that better meet customers’ needs. Governments and financial regulators increasingly recognise these benefits and support them with regulation.
Open banking is a significant step forward for the financial sector. It makes it possible to verify customers’ identity, creditworthiness and financial information more efficiently.
What Is Open Banking?
Open banking is based on the idea that control over bank data lies not with the bank, but with the account holder. The account holder decides whether, and with whom, this data is shared. The bank must therefore provide a way to share account data at the account holder’s request. In the EU, open banking is regulated by PSD2 (Payment Services Directive 2). Under PSD2, which has applied since 2018, banks in the EU must provide secure interfaces (APIs) that licensed companies can use to offer products and services based on bank data.
How Does Open Banking Work?
Open banking relies on APIs (Application Programming Interfaces). They allow account data to be retrieved once the account holder has given their consent. The consent is confirmed with strong customer authentication, for example directly in the bank’s app on a smartphone.
Why Is Open Banking Important?
Bank data can be used in many ways, for example for efficient and cost-effective verification of customers’ identity and creditworthiness in e-commerce, tenant screening and lending. Closer collaboration between banks, fintechs and other service providers makes it possible to meet customer needs better and improve the customer experience.
PSD2 and Open Banking
PSD2 is an EU directive aimed at modernising payment services for consumers and businesses across Europe. It provides the legal framework for open banking in Europe.
Would you like to learn more about PSD2? Then read our article on the Payment Services Directive.
What Are the Benefits of Open Banking?
Open banking creates new opportunities and business models for companies. With access to bank account data, businesses can assess their customers’ financial situation more accurately and with minimal effort. This helps streamline digital processes such as online loan applications and e-commerce payments, enables fast and cost-effective identity verification and supports subscription-based business models.
Open Banking from the Bank Customer’s Perspective
With open banking, customers can manage their finances from a single platform, even if their accounts are held at different banks. Automated transactions and real-time information make it easier to keep track of their finances.
Open Banking for Fintechs and Financial Service Providers
Real estate financing is a good example. With the potential borrower’s voluntary consent, the information needed to calculate the debt service-to-income ratio (DSTI) can be captured and evaluated digitally, directly during the application process. This allows relevant metrics to be collected quickly and accurately, and makes it easier for lenders to handle a growing number of loan applications. The legal framework for this is PSD2.
Would you like to learn more about lending rules for home loans? Then read here.
The Possibilities of Open Banking
With their customers’ consent, businesses can use bank account data for a wide range of financial services and digital applications:
- Credit and lending: Information from multiple accounts at different banks can be consolidated in a single application. Income and expenses can be analysed quickly and accurately, so a borrower’s DSTI and maximum affordable monthly repayment can be estimated within minutes.
- Subscription models: Companies offering subscriptions can assess whether a prospective subscriber can afford the recurring payments. The analysis can also identify the most suitable date for collecting payments.
- E-commerce: Based on open banking data, businesses can offer payment options tailored to their customers’ needs and financial circumstances.
- Real estate: In the rental sector, open banking can determine a prospective tenant’s rent-to-income ratio and maximum affordable monthly rent within minutes. This saves real estate agents time and helps prospective tenants quickly find properties that match their financial situation.
- Human resources (HR): Identity verification is particularly important for employees in sensitive roles. With verification solutions integrated into SAP, employees can verify their identity and bank account details themselves. This helps reduce the risk of payroll fraud, such as attempts to redirect salary payments to fraudulent accounts.
Conclusion
Open banking has a wide range of applications. It simplifies processes and enables companies to offer services faster and more efficiently, with solutions tailored to their customers. It strengthens collaboration between customers, third-party providers and financial service providers. With integrated APIs, companies can reduce fraud and payment defaults, and customers are protected from overextending themselves financially.
With the FINcredible Check, companies can analyse their customers’ creditworthiness and identity quickly and reliably, based on up-to-date bank data provided directly by the customers’ banks.
How Does This Benefit You?
The verification process can be fully integrated, digitally and automatically, into your customer processes, websites and systems. Analysing bank data helps minimise payment defaults and prevent fraud attempts. With the FINcredible Check, use cases such as credit financing, adjusting payment methods in e-commerce and verifying income for rental, leasing and subscription models can be handled within minutes. Data protection is a top priority: the FINcredible Check can only be carried out with the customer’s explicit consent.
As a provider licensed by the Austrian Financial Market Authority (FMA), FINcredible GmbH places the utmost importance on protecting its customers’ privacy and data.
Do You Have Any Questions?
Contact FINcredible at contact@fincredible.at or via our contact form.
