Financial Servicestechnology

What are Open Banking Solutions, and How Do They Work?

What are Open Banking Solutions, and How Do They Work?

The evolution of financial technology in the UK has irrevocably changed the way in which we approach money and how to spend it, disrupting the UK’s financial infrastructure in the process. Where major banks and lenders were previously dominant forces in the field, there are today more than 89,000 finance firms in the UK.

These firms represent a competitive market, where innovation has led to significant advancements in commercially available financial products. One such field of products is described as open banking and could spell the end of traditional banking processes.

What are Open Banking Solutions?

Open banking solutions are products made possible by the merging of traditional banking structures with technological innovations. Financial technology, or fintech, is an emerging field that once revolutionised the way in which banking and finances were handled by major institutions, but which has recently turned its attention to products with tangible consumer-side benefits.

The rise in alternative banks and app-based lenders is one such result, with growing flexibility in payment solutions being another. Open banking can describe the front-end technology for both fields but is a genre of product that exists particularly in the latter field, allowing customers a safe, secure and convenient way in which to pay for goods and services online. To this end, open banking solutions are becoming a popular choice across industries – but how exactly does it work?

How Does Open Banking Work?

In essence, open banking puts financial control in the hands of the consumer. Alternative banking apps enable account holders to open accounts digitally, and manage their finances without ever stepping into a branch. Major banks have since adopted similar technology, but not before alternative banks made a compelling case for themselves.

Open banking solutions, in the sense we are discussing here, apply this consumer-control philosophy to digital storefronts. In the early days of e-commerce, paying for a product or service via bank transfer could be a difficult or convoluted process – whether in entering card information or administrating a direct debit process. Today, open banking solutions enable instant, seamless transactions with little in the way of administration for customers or businesses.

Open Banking as a Business Solution

Open banking is revolutionising e-commerce by minimising the barriers to purchase for customers, and minimising payment failures to businesses. But there are internal and B2B applications for open banking, that can improve business efficiency considerably. Open banking can enable the swift and seamless payment of salaries, without an accounting team supervising transfers themselves. It can also streamline the process of purchasing from suppliers, especially where integration with smart banking and allocated budgets are concerned.

Concerns and Considerations

The revolution in banking and consumer finance is an overwhelmingly good thing for all industries, but also presents some unique risks which need to be assessed by any business intending to integrate open banking solutions. The risk of fraud in emerging technological fields is high, and the risk of poor technological security in newer products is even higher. As a result, businesses should make sure to use FCA-regulated solutions only.

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